Expect Mixed Trend, Sentiment On Profit Taking, As Christmas Holiday Beckons

Market Update for the Week Ended December 16 and Outlook for Dec 19-23

The bull rampage on the Nigerian Exchange continued for the fifth consecutive weeks on positive sentiments and strong momentum, driven by value as revealed by the low Price to Earnings Ratio of the bourse and individual equities, as well as buying interests in highly priced stocks and blue chip companies with sound fundamentals ahead of the year end seasonality. The benchmark NGX All-Share Index over the period under review closed higher, breaking out its 200-Day Moving Average and 49,000 psychological line, continuing its uptrend on an above average traded volume and positive market breadth.

At the current market situation, it is very important for players to understand the impact of market and economic cycle in their investment decisions, knowing that traders and investors are looking to pull money out of the market regularly by way of profit taking. As such, the only thing you are really looking for is a situation where the price of stocks you bought move in your favour. As such, common sense dictate that “Only Price Pays,” not news, not how much we love a stock or the company. If the price does not move, you do not make any money, period.

If price movement is what pays us, then it is only logical that we focus mainly on the price. Most indicators are based on price, so they lag the last traded price for an investment.  So, we focus on price action or structure, momentum and timing.

As we enter the second half the last month of 2022, the eyes of all market player are on the expected November consumer price index from the National Bureau of Statistics, as they digest the latest Purchasing Managers’ Index for the months of November that expanded to 54.6 points from 53.7 in October, the highest in the last six months, despite the negative aggressive rate hike by the CBN as it moves to combat the rampaging inflation. This has been worsened by the policy summersaults of the government’s economic managers amid the changing economic and political environment.

The buying patterns in the previous month has continued in the week under review, indicating that funds flow into the market, notwithstanding the low transaction volume that is yet to really confirm the presence of institutional investors. We note the increasing volume in some individual stocks in the market, given that the NGX index has technically sustained its rally, as revealed by the trend and momentum indicators. Also, the index is trading above the 50-Day SMA and forming a bullish channel, trading above the T-Line and 50-Day EMA on the weekly chart. At this point, the possibility of institutional investors’ entry the market ahead of year-end seasonality and corporate actions in 2023 is high.

Also, profit-taking is expected at this stage after the market had rallied for four successive weeks, resulting in a 5.71% month-to-date gain, as investors’ continue realignment of their portfolios on the strength of corporate earnings and the ongoing Santa Claus rally. Also, players are viewing all of these against the backdrop of the rampaging inflation as they hedge against the rising inflation in some stocks with high dividend yields and strong earnings to support higher payout as financial year end of many companies with December are around the corner.

To navigate the rest of the year profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the low volume of transaction witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

As oil price continues its oscillation, pulling back to trade at $79.83 per barrel, on increasing fear of recession as another rate hike by FED and ECB, Russia oil caped and China confusing rising cases of Covid 19 with its restriction and reopening, geopolitical tension and inflation across the globe. Also supply tighten due to the Russia-Ukraine war that has been lingering.  The up and down movement of oil price also continues to drive volatility across the globe.

Movement Of NGXASI

It was a bullish week of positive sentiment and buying interesst in four trading sessions, and one down market due to profit taking, as demand for high cap companies like BUA Cement and other blue chip stocks supported the gain, breaking out resistance levels of 49,244.36 on a relatively low traded volume for the period.

Trading for the week started on a positive note, extending the previous session’s gain by 0.04%, which was short-lived on Tuesday after losing 0.09% on profit taking, but rebounded at midweek when the index chalked 0.29% a trend that was sustained on Thursday and Friday as the index chalked 0.50% and 0.17% respectively on buying interests in MTNN and others. This brought the week’s total gain to 0.89%, compared to the previous week’s 1.51% gain.

Consequently, the composite NGX All-Share Index gained 434.36 basis points, closing at 49,316.29bps, compared to the week’s 48,881.93 points opening level, after touching intra week high of 49,340.28 from its lows of 48,820.32points. Similarly, market capitalisation rose by N236bn, representing a 0.89% value gain for the week, as it closed at N26.86tr, from the previous week’s N26.63tr,

The week’s top advancers’ table was dominated by low, medium and high cap stocks, amid buying sentiment in blue chip companies, despite the low volume and volatility, as portfolio repositioning continued. Also notable is the fact that investors are taking advantage of low price to buy into value and high dividend yield companies as recovery persist.

Market metrics indicate a positive breadth as gainers outnumbered losers in the ratio of 32:28 on a buying pressure as reveal by investdata sentiment report showing 95% ‘buy’ volume and 5% sell position. Money Flow Index looking down to 35.61bps, from the previous week’s 27.35points, an indication that funds entered the market on a weekly chart to reflect positioning and profit taking in some major sectors and individual stocks.

The NGX index’s action has formed a cup and handle chart pattern on a weekly time frame, trading above the T-line and 200-DMA, reaching a topping level that signaled profit taking or continuation of trend on a positive breakout that needs confirmation on Monday morning when the market opens. We note that the volume that supported this recovery and rally remain weak and below the market’s traded average, just as corporate actions and year-end seasonality could support an uptrend.

Bullish Sectoral Indices

Sectorial performance indexes for the week closed green, except for the 0.20% slide by the NGX Consumer goods, while the NGX Industrial Goods led the advancers’ after gaining 3.44%, followed by Banking, Insurance, and Energy with 2.87%, 0.47% and 0.36% respectively.

Activities in volume and value were down, as investors exchanged 814.09m shares worth N12.20bn, compared to the previous week’s 1.23b units valued at N15.24bn, with volume driven by Financial Services, ICT and consumer goods. Specifically, the week’s volume was driven by trades in Sterling Bank, Accesscorp, GTCO, MTNN and Chams.

Learn Africa and Thomas Wyatt were the best-performing stocks during the week, gaining 28.48% and 18.75% respectively, closing at N2.12 and N0.57per share on market forces. On the flip side, McNichols and Academy Press lost 11.48% and 9.70% respectively, at N0.54 and N1.21per share, purely on selloffs and profit taking.

Outlook for the week

We expect a mixed trend and sentiment being the last full trading week before the Christmas holidays on profit taking after NGX index had formed a topping pattern on a weekly and daily time frame. Even as it eyes 50,000 psychological level in the new week, just as retracement to 49,244.19 mark and below is possible on selloffs as events unfold globally and domestically here in the midst of expected corporate actions and positioning for full year financials.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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