Expect Post-Bargain Hunting Profit-Taking Amid Portfolio Repositioning, Economic Data

Market Update for June 7

The positive outing on the Nigerian Exchange continued Tuesday, with the NGX All-Share Index closing higher on a low traded volume and slightly a positive breadth to sustain the changed momentum since Friday on positive sentiments, as buyers remained in control, after the pullbacks and profit-taking.

This shift in momentum was attributed to buying interests in telecom stocks and blue-chip stocks that had suffered losses before now in reaction to the rate hike by the Central Bank of Nigeria (CBN), amid concerns about the impending global economic recession. Also, all eyes are on global and domestic economic data, just as buying sentiment continues across some major sectors and funds seem to have started flowing back into the equity market, after the flow of funds into the fixed income instrument from risk-averse investors due to the MPR hike that followed the May inflation reports from the National Bureau of Statistics (NBS).

In any market condition, all you need is price because assets price trends in volatility, whether in low or high volatility, so when investing in the stock market, always approach it as a market of stocks, regardless of the environment or situation because there are always stocks showing leadership and trending higher. Here, you may have to look harder to identify them, and depending on current market conditions, there are always stocks that are going up. The same can be said for weak stocks, regardless of the environment or situation, there are always stocks that are traveling south too. So look for stocks with the best momentum and relative strength characteristics.

In the ongoing market reversal, following and trading prices action simply means that the market tells you what to do and not the other way round because the price is always right as it does not care what 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 stop loss is not in use.

Again oil prices rebounded powerfully in the international market, oscillating to $121 per barrel, after touching a two-month high of $123.80 on the reopening of China provinces locked down due to Covid 19, amidst Saudi Arabia’s July future price rise. There is also the fear of the possible birth of a cartel of oil consumers in a bid to keep prices down, despite the ongoing Ukraine-Russia war. Also, the EU plans to enforce the embargo on the importation of Russian oil, even as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’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 distance time as institutional investors balance their portfolios.

The NGX index’s action has technically sustained its markup phase, trading above the ‘T-Line’ and the 20-day moving average, as the market remains strong, despite the mixed trend that started the month. The strong resistance level has been within the 53,774.20 basis points region, while volatility persists and uptrends towards the next breakout sported around 53,603.16.01bps. Should the index break this point, the next visible resistance is 53,734.27bps.

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.

Tuesday’s trading started slightly on the upside which was sustained for the rest of the trading session, despite oscillating on buying interest and selloffs across the major sectors and high priced stocks, a situation that pushed the NGX’s index to an intraday high of 53,276.66bps from its lows of 53,046.72ps before closing above its opening points at 53,270.88 points.

Market technicals were positive and mixed, as volume traded was lower than the previous day in the midst of breadth favouring the bulls on positive sentiments as revealed by Investdata’s Sentiments Report showing a 97% buy position and 3% sell volume. The total transaction volume index stood at 0.59 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking up at 48.90pts, from the previous day’s 41.02pts, indicating that funds entered the market.

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Index and Market Caps

At the end of Tuesday’s trading, the benchmark NGX All-Share Index gained 184.22bps, closing at 53,270.88bps, after opening at 53,086.46bps, representing a 0.35% up. Similarly, market capitalization rose by N100bn, closing at N28.72tr, from the previous day’s N28.62tr, which also represented a 0.35% value gain.

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Meanwhile, Tuesday’s upturn was driven by accumulation in stocks like MTNN, GSK, UBN, Zenith Bank, Lafarge Africa, NGX Group, United Capital, and UBA, among others. This impacted positive on Year-To-Date gain, which rose to 24.71%. Market capitalization growth stood at N6.55tr YTD, representing a 28.71% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Industrial Goods closed 0.29% and 0.04% higher respective, while the Insurance led decliners after losing 0.37%%, followed by Consumer goods with 0.26%.

Market breadth was positive, as gainers outnumbered losers in the ratio of 16:15; just as transactions in volume and value terms were down, after investors exchanged 234.62m shares worth N2.75bn, with volume was driven by trades in Transcorp, UBA, Chams, NGXGroup and Fidelity Bank.

GSPEC Plc and Jaiz Bank were the best-performing stocks of the session, gaining 10% and 7.95%, while closing at N2.75 and N0.95 per share respectively on market forces. On the flip side, Cutix and Cadbury lost 10% and 5.93% respectively, closing at N2.61 and N16.65 per share, on profit-taking.

Market Outlook

We expect profit-taking after the recent bargain hunting that pushed the market up amid the continued portfolio repositioning ahead of economic data, and the interim dividend season, while audited accounts of March year-end companies are expected to hit the market. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and Q1 corporate earnings release. Analysts are also on the lookout for the May consumer price index to support recovery in the new month 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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Theme: Profiting From Asset Pricing In An Uncertain Market, Rising Rates Environment

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  2. Power of Price Action in identifying Opportunities in Any Market Cycle, , Mr. Abdul-Rasheed Oshoma Momoh, Head Capital Market at TRW Stockbrokers Ltd
  3. State of the Economy & Impact Doubling on Company Earnings in Negative Real Rate Of Return Environment. , Mr. Ambrose Omordion, Chief Research Officer, Investdata Consulting Ltd

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605