Expect Profit-Taking Slowdown After Six-Day Bull-Run, Repositioning Ahead Of Q3 Earnings

Market Update for October 7

The bull rally continued Thursday on the Nigerian Exchange as the benchmark NGX All-Share Index closed higher on a very high traded volume and positive market breadth, thereby extending its sixth consecutive session of positive outing on bargain hunting, ahead of Q3 earnings releases, last quarter seasonality, and year-end trading patterns and sentiments.

The market uptrend persisted after forming an inverted head and shoulder bullish chart pattern on a weekly and daily time frame, despite the seeming divergence in daily traded volume as revealed in the chart above. The increasing buying interest across the sectors signaled a gradual return of investors’ confidence as funds flowed into equity assets with investors hedging against inflation, regardless of the decline recorded in the last five months.

Trading metrics or statistics in the first week of October has been positive and exciting for the investors at a time oil price remains above $80 per barrel.

Also on Thursday, the Federal Government presented its Appropriation Bill for 2022 indicating plans to spend N16.4 trillion for the year in the face of the nation external reserve hitting a 21-month high to help resolve the lingering crises in the foreign exchange market which are already threatening the economic recovery if not addressed quickly by the nation’s economic management team.

The market continues to maintain a positive momentum amidst the notifications of closed periods and interim dividend possibilities as the boards of Lafarge Africa, Presco, and Okomu Oil meet to consider payment. At Thursday’s trading session, Presco, FBN Holding, Learn Africa, Courtville, Livestock Feeds, Airtel Africa, among others, broke out their minor and major resistance levels as others make new highs.  

The huge volume traded on Thursday was boosted by off-market transaction of 473m in FBN Holdings’ share, an indication of renewed investor confidence in the company, as the stock still remains undervalued. The market is currently heading to breakout another resistance level of 40,884.19bps and 41,014.22bps, following which we should expect a slight pullback on profit-taking this week or next week before the Q3 numbers starting hitting the market. The state of the expected earnings reports and level of liquidity in the equity space will determine the possibility of another rally in the new month and quarter. The two and three-year savings bond rates of 6.9% and 7.9% respectively should not threaten the equity market for now, until we see anything to the contrary. The money flow index read 79.91 points, indicating the entrance of funds into the equity space.

Investors should hold onto their high value and growth stock positions, even as the direction in the fixed income market yields and rates is still not clear, this is not unexpected as funds flow to where there are higher returns.

Meanwhile, Thursday trading opened on the upside and it was sustained throughout the session, slight oscillation on positioning and profit-taking that pushed the NGX index to an intraday high of 40,842.93 basis points, from its lows of 40,764.21bps, after which it closed slightly above the opening points at 40,829.15bps.

Market technicals were positive and strong as volume traded was higher than the previous days in the midst of breadth that favoured the bulls on positive sentiment as revealed by Investdata’s Sentiment Report showing 82% ‘buy’ position and 18% sell volume. Total transaction volume index stood at 1.25 points, just as momentum behind the day’s performance was strong, with Money Flow Index looking up at 85.29points, from the previous day’s 81.28points, indicating that funds entered the market.

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Index and Market Caps

At the close of Thursday’s trading, the composite NGXASI gained 63.95 basis points and closed at 40,829.15bps after opening at 40,765.20bps, representing a 0.16% up, just as market capitalization rose by N33.30bn, closing at N21.28tr, from the opening value of N21.24tr, also representing 0.16% appreciation in value.

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The session’s upturn was driven by accumulation in Presco, Okomu Oil, Lafarge Africa, Zenith Bank, UBA, FBNH, Access Bank, Vitafoam, UPDC, Fidelity Bank, and Livestock Feeds, among others, which impacted positively on Year-To-Date gain, raising it to 1.39%. Market capitalization was up by N217.58bn YTD, representing a 1.04% growth from the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were in the green, except for NGX Insurance that closed 1.24% lower, while NGX Banking led the advancers after gaining  0.70%, followed by Industrial and Consumer goods with 0.08% and 0.06% respectively. While NGX Oil/Gas was Flat.

Market breadth turned positive, as gainers outnumbered losers in the ratio of 24:20, while activities in volume and value terms were up after stockbrokers traded 812.30m shares worth N10.58bn, more than double the previous day’s 400.65m units valued at N3.48bn. Volume was driven by trades in FBNH, Fidelity Bank, Wema Bank, Ecobank Transnational Incorporated, and Transcorp.

University Press and Presco were the best performing, gaining 9.92% and 5.92% to close at N1.44 and N85.00per share respectively on market sentiments and expected Q3 earnings report and interim dividend possibility. On the flip side, BOC Gases and Caverton lost 9.87% and 9.71% respectively, closing at N10.50 and N1.58per share purely on profit-taking and market forces.

Market Outlook

We expect a slow down on profit-taking after six straight days of bull-run and repositioning ahead of the Q3 earnings season and the positive candlestick formation to remain bullish as revealed by momentum indicators and volume. It is equally noteworthy that investors and traders are taking advantage of the likely pullback to accumulate more positions ahead of the earnings reporting season. Also noteworthy is the fact that many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury Bill auction were 91 and 182 days tenor rates remain unchanged and 364 days slightly up by 30points to 7.50% for a whole one year ahead of last quarter and year-end repositioning of portfolios. Also, investors are still observing the interplay of forces in the FX market as the CBN postpones the launch of the new digital currency platform. The day’s high volume suggests that institutional investors and others are gradually taking position in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605

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