Expect Positive Sentiment Ahead Of MPC Meeting Outcome, Volatility Amid Q4 Earnings Prospects

Market Update for January 18

The seesaw movement on the Nigerian Exchange continued at the midweek, reflecting the profit booking activities of investors in the midst of volatility and mixed sentiments, as momentum behind the uptrend and recovery remained strong on the back of increasing buying power ahead of 2022 corporate earnings and actions. Investors and traders also have their eyes on the likely outcome of next week’s meeting of the Central Bank of Nigeria’s Monetary Policy Committee slated for Monday and Tuesday.

Profit taking in industrial and consumer goods stocks continued after the NGX recently broke out a strong resistance in the face of a topping chart pattern as revealed by the index action. The pullback on a low traded volume signals the possibility of markup by smart money after removing the supply, as inflation slipped marginally and fixed income market rates declinedon the possibility that the MPC could leave the benchmark MPR unchanged, or worst case scenario, a 25 basis point raise is high, as cost of debt servicing is high. We note also that the various company boards are announcing their scheduled meetings to approve audited financial statement for 2022.

Buying interests was noticed in some major sectors of the market, despite the seeming profit taking, this may continue to support the rally as revealed in the short and medium term trend which remain intact, therefore signaling the continuation of this recovery in the month of January due to earnings reporting season that would support price. This is however, notwithstanding uncertainties associated with the coming 2023 general elections, and possible post-election rally, all things being equal.

The mixed sentiment in some stocks pulled the market down slightly, as it traded above the 8- EMA, 200-Day Moving Average on the daily and weekly time frame in the midst of volatile and mixed sentiments. This was driven by the continued bargain hunting activities of positioning in value stocks at their current prices ahead of the NGX’s historical peak of earnings reporting season that comes with more liquidity, buying interest, earnings surprises and disappointments. Also, rates and yields in the fixed income market have been on the decline across all tenor as seen in the last TB primary market auction offer for 2022.

Technically, the NGX index action slide to distribution phase in the face of a topping chart and bullish V-shape pattern that supports reversal or continuation of trend on a daily and weekly time frame, as the convergence between the index action and MACD at the end of Monday trading on a dally chart supports reversal of trend, due selloffs that hit some banking, industrial and consumer goods stocks. Let us keep our gaze on market forces and money flow.

Momentum indicators appear to remain stronger, as revealed by the ADX reading 68.81, just as, RSI and Money Flow Index slowdown to read 76.90 and 82.50 points against the previous session 78.47 and 83.60 points respectively. Volume trading pattern suggests the gradual return of many players who had been seating on the fence before now, including institutional investors holding cash to confirm the primary’s market direction, especially given the anticipated financial market and economic reset in 2023 that comes with huge opportunities to create wealth for smart investors and traders.

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Oil price oscillation continued, trading at $84.34 per barrel on increasing fear of global recession in the midst of China reopening its borders. Just as the geopolitical tension, high interest rate and inflation across the globe continue to threaten the world. Also, supply tightened due to the Russia-Ukraine war that has lingered so far. The up and down movement of oil price also continues to drive volatility across markets.

Midweek’s trading opened slightly in the upside before pulling back to oscillate for the rest of the session due to profit taking in some blue chip stocks and position taking in medium and low cap companies, a situation that pushed the NGX’s index to an intraday low of 52,558.62 basis points from its highs of 52,718.701bps before closing slightly below its opening level at 52,615.51bps.

Market technicals were positive and mixed, with lower volume of trade compared to the previous session in the midst of breadth favoring the bears on mixed sentiment as revealed by Investdata’s Sentiments Report showing 36% buy position and 64% sell volume. The total transaction volume index stood at 0.96 points, just as momentum behind the day’s performance was strong as Money Flow Index looked up at 82.50pts, from the previous day’s 83.21pts, indicating that funds entered the market, despite the down market.

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Index and Market Caps

The benchmark NGX All-Share index, at the end of the day’s trading slipped by 85.80 basis points, closing at 52,615.51bps after opening at 52,701.31bps, representing a 0.16% drop, just as market capitalization fell by N46.74bn closing at N28.66tr from the previous day’s N28.70tr, which also represented a 0.16% value loss.

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The session’s downturn was driven by selloffs in the shares of Dangote Cement, Lafarge Africa, International Breweries, Dangote Sugar, Livestock Feeds FTN Cocoa and Oando, among others, which impacted mildly on Year-To-Date gain to 2.66%. Market capitalization YTD gain stood at N783bn, representing 2.66% above its opening level for the year.

Mixed Sector Indices

Sectorial performance indexes for the session closed mixed, as NGX Industrial and Consumer goods closed lower by 0.99% and 0.20% respectively, while NGX Insurance led the advancers after gaining 1.36%, followed by Energy and Banking with 0.07% and 0.05% respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 21:17; whereas activities in volume and value were up, after stockbrokers traded 221.85m shares worth N3.25bn. Volume was driven by trades in UBA, GTCO, Transcorp, FBNH and Zenith Bank.

Chellaram and CHI Plc were the best performing stocks, after gaining 9.77% and 9.52% respectively, closing at N1.46 and N0.69 per share respectively on market forces and earnings expectation.  On the flip side, FTNCocoa and ABC Transport lost 6.67% and 6.45% respectively, closing at N0.28 and N0.29per share, purely on selloffs and profit taking.

Market Outlook

We expect positive sentiment and mixed trend to continue ahead of MPC meeting and volatility in the face of Q4 earnings expectation and election uncertainty, as pullback at this point add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Crucial Announcement

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CRO|Investdata Consulting Ltd




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