Expect Mixed Trends, Sentiments On Bargain Hunting, As Investors React To H1 Earnings

Market Update for August 4

Trading activities on the Nigerian exchange maintained a bearish posture, a mixed session and volatile trend on Thursday, as the composite NGX All-Share index again closed slightly lower to extend its ranging mood on a low traded volume and positive market breadth. Market players also continued interpreting the recent macroeconomic data and corporate earnings to reposition their portfolios on the strength of companies’ earnings performance and positive fundamental news about the various sectors that would support prices on market sentiment and forces.

The mixed sentiment and market range band call for investors and traders’ attention to understand the right and best tools to apply at this moment, knowing the relationship between there technical tools and indicators will help profitable trading by identifying chart patterns for pure profits. What you need to understand in any chart are price actions, volume and time. You cannot have one without the other. Volume and price movement provide a potential trade setup if you must buy or sell stock. At any time, you want to enter a trade, try to build a story in your mind by asking who is in control and how long they have been in control, between the bear and bull. The answer will help you decide, or know if the trade will work or not.

Discerning investors are taking advantage of the increasing global volatility, rising geopolitical tension and slowing consumer spending. However, there are pockets of strength in some sectors amidst the better-than-expected earnings releases that offer insights into the inherent upside potentials associated with the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.

The earnings performance of companies in the NGX-30 which has supported the market rally before now has remained positive, despite the share prices witnessing pullbacks or ranging to provide buy opportunity. This offers investors and traders an insight into the general mood, just as Price/Earnings ratios of most companies on the exchange revealed their underpriced state, with higher upside potential to attract liquidity and positive sentiment.

The new uptrend remains intact despite extending the ranging mood of the market, while investors need to navigate the market now that many equity prices look cheap on the strength of impressive earnings and relatively low prices. The market cycle of a bear situation and market bottom in the face of technical patterns of oversold market or individual stocks supports the uptrend, as bargain hunters take advantage of the pullbacks or relatively low P/E ratio to reposition their portfolios.

Despite Thursday’s market pullbacks, the NGX All-Share index still trades above 50,000 mark and slightly below the ‘T line’ and 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the scorecards of many companies in the market. It is therefore time to use technical tools, 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 reversal is underway depending on the earnings power.

To navigate this month 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 mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil prices continued to oscillate after pulling back to their six-month low on output concerns and fear of recession to trade at $94.96 per barrel in the international market, following the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

Thursday’s trading started slightly in the uptrend and osculated for the rest of the trading session on buying interests and profit-taking in blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 50,372.55bps from its highs of 50,720.86ps, before closing marginally below its opening point at 50,582.30 bps.

Market technicals were positive and mixed, with higher volume traded than the previous day in the midst of breadth favoring bulls on mixed sentiment as revealed by Investdata’s Sentiments Report showing 60% buy position and 40% sell volume. The total transaction volume index stood at 0.69 points, just as impetus behind the day’s performance was weak as Money Flow Index is looking down at 30.98pts, from the previous day’s 32.81pts, indicating that funds left the market.

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Index and Market Caps

The key performance index NGXASI, at the end of Thursday fell by 12.67bps, closing at 50,582.30bps, after opening at 50,594.97bps, representing a 0.03% drop, just as market capitalization fell by N6.83bn, closing at N27.27tr, from the previous day’s N27.28tr, which also represented a 0.03% depreciation in value.

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Meanwhile, Thursday’s downturn was driven by profit-taking and selloffs in BUA Cement, FBNH, Eterna, Dangote Sugar, NEM, Caverton, Fidelity Bank, and Oando, among others, which impacted mildly on Year-To-Date gain, which reduced to 18.41%.  Market capitalization gain YTD also fell to N3.82tr YTD, representing a 22.34% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking, Consumer Goods and Insurance closed higher by 2.07%, 0.06% and 0.04% respectively, while NGX Industrial Goods led the decliners after losing 1.57%, followed by Oil/Gas with 0.05%.

Market breadth, remained positive as gainers outnumbered losers in the ratio of 24:16; just as activities in volume and value terms were mixed, after investors exchanged 130.45m shares worth N1.62bn, with volume driven by trades in Aiico, Transcorp, Accesscorp, Consolidated Hallmark Insurance and Japaul Gold.

PZ Cusson and Honeywell Flour were the best-performing stocks, after gaining 10% and 9.64%, closing at N9.35 and N2.73 per share respectively on full-year earnings expectation and market forces. On the flip side, Multiverse and LASACO lost 10% and 7.07% respectively, closing at N1.71 and N0.92per share, purely on selloffs.

 

Market Outlook

Expect a mixed trend and sentiments to continue on bargain hunting as players react to impressive half-year financials of companies in the midst of sovereign risks, as interim dividends are expected from first-tier banking stocks. 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 focused on the lookout for Q2 GDP 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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