Expect Mixed Trend On Profit Taking, Realignments As Investors Digest H1 Earnings Reports

Market Roundup for July 2023
The second half of 2023 started on a positive note on Tuesday, after equity prices on the Nigerian Exchange closed higher in the first trading month of the Q3, sustaining the gain recorded in June on positive sentiment for some government policy statements and the ongoing economic reforms. The last four trading sessions of July witnessed pullbacks on profit taking, selloffs and portfolio rebalancing in the midst of the recent 25 basis points rate hike by the CBN.
There were also the effects of the mixed performance of half-year corporate earnings released so far, especially as numbers from manufacturing companies came below market expectations, on the negative impacts of foreign exchange losses that hit the bottom lines of these companies pushing them into the red due foreign loans and cost of imported production inputs. On the other side, earnings reports from financial service providers have been impressive, with many recording foreign exchange gains that boosted their performance, in addition to regulatory policies that supported their earnings in the face of weak macroeconomic data submitted during the review period. The month of July was characterized by mixed trends, pullbacks, positive sentiments, momentum and improved liquidity, due to increased buying interests in blue chips companies, large and low cap stocks.
Judging by the mixed half year scorecards hitting the market, the optimism among investors have slowed down, given that they now have an insight into what the nation’s Q2 GDP numbers would look like. As such, we expect the market to continue its pullbacks, oscillation and volatility as investors and analysts study and digest the actual numbers released by these companies to realign their portfolios for profitable trading in the new month, due to the changing price patterns and trading environment.
These notwithstanding, as a discerning investor or trader, you should take advantage of the sectorial performance as revealed by the recent company’s numbers to adjust your positions by selling off or averaging down, depending on how demand and supply dynamics play out.
Despite, the mixed trend and chart pattern at the end of the month, July remained a solid month as the bull transition maintained an uptrend, making value and growth stocks sustain strength, especially some of those that posted impressive half-year numbers. As mentioned earlier, some half-year corporate scorecards have come surprisingly impressive, but investors are looking into the future to ascertain the possibility of continuity amidst the weak national economic recovery and concerns.
We note that a good number of listed companies on the NGX posted numbers below market and analysts’ projections, but guidance for the current quarter and the rest of the year remains weak with many company managements not providing forecasts or estimates. This, understandably, is due to the mixed economic outlook for the second half in the face of rising insecurity, soaring inflation and unstable economic policies. Top and bottom-line growth has been mixed, so investors want to know if this will continue in subsequent quarters or not.
Technically, the just concluded earnings reporting season has come to an end, except for interim dividend-paying stocks who between now and early September to make available their numbers, since such are being audited before being presented for regulatory approval.
The most outstanding sectors in terms of half-year earnings performance released in the period are: Banking, Insurance, Airline service handling companies, oil marketing companies and others. This was a function of policy changes as mentioned earlier from fiscal, monetary and regulators that impacted positively on these sectors and industries.
Despite the sustained market oscillation, some stocks have recorded huge gains year-to-date, as the market tested its all-time high of 66,017.90 before breaking down the T line that confirm the mark down phase on last trading day of the month and most of those on the Investdata “buy & sell” signal setup, and those attended the Q3 master class have benefited from the July rally before the pulled back. For them, the month was really as a solid month. In any equity market across the globe, superior fundamentals define leading stocks and strong earnings has sharp influence on the share prices of company, especially when positive uptrend in earnings are sustained or established. Also, technically, the best of stocks distinguish themselves by their sound base chart patterns and volume behind the momentum.
Profit-taking is inevitable in stock trading. As such, taking profit from stock when you are between 12% to 18, rather than waiting for the normal 20% to 25% may be a useful strategy in the second-half of this year to avoid being trapped in any position for too long. In the next five months, the small and medium cap stocks are set to outperform the high and large cap equities, especially given that most of the high priced stocks are seemingly overpriced and overweighed already.
Since every investment or trade is against expectations, let your investment objectives guild your entry and exit decisions, since the beginning of the year 2023 the equity market has been oscillating due to many factors ranging from rising inflation, rate hikes, election uncertainty, corporate earnings performance, government policies, insecurity and others. Regardless of these facts, NGX has been rallying over the last three months, in addition to other factors such as rising yields in the fixed income space, recovering oil price in the international market as it now trades above $83 per barrel.
During the month, the NGX recorded 21 trading sessions, within which the market closed positive in 12, and negative in nine, following which the All-Share index closed higher on a mixed trend. The benchmark index gained 3,396.25 basis points during the period, closing at 64,337.52bp after breaking out various psychological lines of 62,000, 63,000 and 64,000 to touch the month’s high of 66,017.94bps, from its lows of 60,705.92bp, after it had opened at 60,968.27bp which represented 5.52% growth for the month.
The sentiment report for the month revealed buying positions of 68% and selling volume of 32%, as total transactions volume index stood at 3.30 to sustain the previous month’s gaining position, while market capitalization rose by N1.81 trillion, closing at N35.01tr, from an opening value of N33.20tr, representing 5.45% value gain. The market had a combination of mixed sentiments, buying interest and profit-taking as corporate earnings released and rate hike triggered selloffs and portfolio repositioning. The month’s traded volume was up by 75.17% at 22.79bn shares, up from 13.01bnunits in the previous month.
The benchmark index’s year-to-date gain position reduced to 25.53%, just as market capitalization gains stood at N6.17 trillion, also representing 25.50% YTD from the opening value.
Market breadth in the month of July was positive as gainers outpaced losers in the ratio of 62:48, extending the bullish trend seen in the month of June, and reflecting the increased demand for blue chip stocks and medium cap equities in policy statements and reforms of the government, as profit-taking hit all class of equities on the exchange.
Performance indexes across the various sectors and market were up as shown in the charts below, except for the NGX Insurance and Consumer Goods that were down for the month by 5.89% and 4.58% respectively, whereas the NGX Oil/Gas, Industrial Goods, NGX 50, Premium Banking, Pension and NGX 30 outperformed the key performance index as more stocks recorded gain for the period, while losses suffered by mid cap stocks dragged the NGX Insurance and others down for the period under review.
The recovery and uptrend in July was attributed to price appreciations in highly priced stocks like Seplat, Dangote Cement, Total Nigeria, conoil, Mrs Oil, Geregu, Stanbic IBTC, Okomu oil, and GTCO, among others. Discerning investors and institutional players are continuing their portfolio repositioning in the new month, on the strength of half-year earnings reports, amidst the relatively low Price-To-Earnings which remain attractive as numbers were mixed and below expectation. See the table below for more:

Best Performing Stocks for July
More companies featured on the advancers table during the month under review, just as blue chip companies, medium cap and low priced stocks topped the table. They are: Skyway Aviation, John Holt, Chellaram, Nascon, Transcorp Hotel, Daar Coms and TIP, signaling recovery in the sector, on improved earnings emanating from these companies with capacity to support their share prices. Recall that the sector had suffered setback before now, while the market still looks forward to policy direction of the government as ministers are underway to formulate policies that will drive different sectors of the economy. The stocks closed the month higher as indicated in the table below.

Worst Performing Stocks for July

The top losers for the month were blue chip manufacturing companies, medium priced stocks and small cap companies, led by Champion Breweries, which shed 36.80%, on the back of its unimpressive earnings and profit taking, followed by Cadbury Nigeria which reported half-year earnings that was below market expectations. Abbey Building and Tripple Gee witnessed selloffs as investors also reacted to the poor earnings, while that of Ikeja Hotel was purely on price adjustment and profit taking as its Q2 numbers suffered a decline. Investors may also be reacting to the disappointing numbers posted by consumer goods sector. PZ fell by 25.68%; Guinness Breweries, 25.06%; and Lasaco, 22.69% on the back of price adjustments and profit booking.

Technical View on Monthly Time Frame (See Opening chart)

The NGX index’s action has formed a bullish channel on a monthly chart, which suggests a breakout or down from now, as candlestick formation is not giving clear direction after it had slow down to extend two consecutive months of gains, on positive financial news in form of earnings. The state of the numbers may trigger buying interests and positive sentiments as portfolio repositioning on Q2 numbers continue. The inflow of funds to equity assets on a monthly time frame as revealed by money flow index may support the seeming reversal on smart money reposition their portfolios.
NGX Index action On A Weekly Time Frame

The NGX’s index action on a weekly chart pulled back, looking to the T-line, 20-day moving average, even as it entered a distribution phase that signals correction, as index action oscillates within the channel of resistance and support level of a trendy market. But the top pattern formed without the channel supported the reversal which this mixed numbers are also likely to support. A reversal at this point will add more momentum to the recovery moves, only that the month of August is very dicey,
NGX Index Action On Daily Chart

The NGX Index action on a daily time frame has confirmed a new downtrend with the strong selloffs and profit taking recorded at the last trading session of July, putting the short-term support level at 63,913.43bps. This correction is very important as index action gathered more strength to rebound powerfully and breakout the last resistance level. The zigzag chart pattern with corrective wave given way that supports uptrend, just as discussed in our Q & A session over the weekend. As momentum indicators are looking down especially money inflow index that revealed entrance or exit of funds into the equity space on daily, weekly and monthly time frame.
To navigate the rest of the quarter and year profitably, order Investdata’s video on How to effectively combine Fundamentals and Technical Analysis to enhance trading decisions and boost your bottom line. Also, to up your game in stock trading and investing, understanding the key to trading price and index action will go a long way to make the difference in your trading results, checkout the video materials below.

Market Outlook
We expect a mixed sentiment and trend, as a result of profit taking and portfolio repositioning continued on investors digesting half year earnings reports which may likely lead to slight pullback or correction following the recent rally. Just as all eyes are on unfolding events in the domestic economy and global environment.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605