Market Update for July 18
Trading activities on the Nigerian Exchange on Monday had a mixed sentiment, as its extended the bull run on a slow momentum for the second successive session, starting the week on a positive note, thereby sustaining the recent breakout above 52,000 on buying interests in energy stock, among others to formed a double top, which signals reversal pattern that need to be confirmed as trading opens today. Also, the NGX index trades above the ‘T line and 50-day moving average in the midst of increasing volatility as players react to economic data and corporate earnings released recently.
The slowdown in the uptrend was in the face of a low traded volume and negative market breadth, as cautious trading remains obvious in the market due to the rising inflation rate across the globe, just as rates hikes are slowing down economic growth and pointing to a recession. However, despite the prevailing challenges and mixed outlook of many economies, there are opportunities in some sectors for medium to long-term investors to hedge against the soaring inflation and down market, even as the half-year earnings reporting season kicked off with mixed numbers.
For example, United Capital Plc released its half year results ended June 30, 2022, with top and bottom lines rising by 33% and 41% respectively, to the market during trading which. The result translated to Earnings Per Share of 74 kobo, from 52 kobo in 2021, while Profit Margin stood at 48%. Expectedly, the market reacted positively to these numbers, just as investors expect more companies to make available their numbers to the market between now and August 2022.
With the days of surprises and disappointing earnings drawing closer, it is time to keep your eyes on price action, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market side trends to resist further decline.
The new market environment of rising inflation, interest rates and election call for new trading and investing strategies, as factors that kept the market in its oscillating trend remain unchanged. This is happening amidst the expectation of interim dividend-paying corporate earnings, and others will be game-changers as we go further into the quarter with increasing political activities ahead of the 2023 general elections and the ongoing war between Russia and Ukraine. Also, inflation rates in the US hit a 40-year high at 9.1% and beyond expectation, signaling a higher rate hike by Fed, as the IMF has recently downgraded the world economic outlook due to the geopolitical crisis, rising inflation and oscillating oil prices.
To navigate the month profitability 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 mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”
Technically, the NGX index action is on a markup phase as noted earlier on the daily and weekly -time frame, supported by ‘buy interest’ in the high cap stocks as more earnings reports are being expected. The daily index and price actions as we go into the earnings season will give direction as to what we should do and expect in Q3, just as more insights into the entire second half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.
Market players are implored to watch the price actions and volume, which simply mean that the market tells you what to do, and not the other way around, because the price is always right and does not care whatever a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account if a stop loss is not in use.
Oil price rebounded to $106.3 per barrel in the international market, despite the fear of recession to remain above $100 per barrel, after COVID-19 restriction has slow down China economic growth in the recent data released. All these have continued to influence the monetary policy options of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.
The possibility of the trend being sustained is high, and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.
Meanwhile, Monday’s trading opened slightly on the upside and oscillated throughout the session on position taking and selloffs in blue-chip stocks, a situation that pushed the NGX’s index to an intraday high of 52,510.17bps from its lows of 52,215.12ps before closing above its opening points at 52,319.94bps.
Market technicals were negative and mixed, with lower volume traded than the previous day in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 36% buy position and 64% sell volume. The total transaction volume index stood at 0.49 points, just as energy behind the day’s performance was weak as Money Flow Index is looking down at 32.75pts, from the previous day’s 33.66pts, indicating that funds left the market, despite the up market.
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Index and Market Caps
At the end of Monday’s session, the composite NGX All-Share Index gained 104.82bps, closing at 52,319.94bps, after opening at 52,215.12bps, representing a 0.20%. Similarly, market capitalization rose by N56.53bn, closing at N28.20tr, from the previous day’s N28.16tr, which also represented a 0.20% value gain.
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Monday’s upturn was driven by accumulation in shares of Seplat, Cornerstone Insurance, UBA, FBNH, GTCO, Fidson, Flour Mills, Mansard, Accesscorp, and Wema Bank, among others. This impacted mildly on Year-To-Date gain, as it increased to 22.48%, while market capitalization growth YTD was up slightly to N5.09tr YTD, a 26.54% rise over the opening level for the year.
Bearish Sector Indices
Performance indexes across sectors were down, except for NGX Energy that closed 4.02% higher, while NGX Consumer goods led the decliners after losing 0.64%, followed by NGX Insurance and Banking with 0.53% and 0.04% respectively. while NGX Industrial goods closed flat.
Market breadth was negative, as losers outnumbered gainers in the ratio of 22:16; just as activities in volume and value terms were down, after investors exchanged 116.28m shares worth N3.46bn, with volume driven by trades in UBA, Zenith Bank, FBNH, Accesscorp and GTCO.
Seplat Energy and Cornerstone were the best-performing stocks after gaining 10% and 8.77%, closing at N1,430.50 and N0.62 per share respectively on earnings expectation and market forces. On the flip side, CWG and Academy Press lost 10% and 9.50% respectively, closing at N0.81 and N2.00 per share, purely on profit taking.
We expect mixed trend and sentiment to continued, as cautious trading in the midst of investors interpreting the recent economic and corporate numbers released so far ahead MPC meeting and expectation of more earnings reports and interim dividend. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also on the lookout for June consumer price index to guide investment decision and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.
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