Expect Rebound, Mixed Sentiment, After TB Auction, Portfolio Reshuffling, Year-end Seasonality

Market Update for December 13

Tuesday’s trading activities on the Nigerian Exchange ended with a slowdown in profit taking, as the bears had an upper hand, ahead of the release of major macroeconomic reports that will further guide investors in the midst of the changing yield environment and increasing system liquidity. Also, rates and yields at Wednesday’s TB primary market auction continue to slide, while at the same time signaling the possibility of funds flowing into equities with profit taking supporting higher dividend yields.

The composite NGX All-Share index closed slightly south, ending the two-day winning streak, on an above average traded volume and negative market breadth, amid the cautious trading at the strong resistance level with the topping pattern of the index that support reversal or continuation of trend in the face of year end seasonality and expected corporate actions.

Profit taking and selloffs in some high, medium and low cap stocks pulled the market back to create buy opportunities for discerning investors and technical traders, especially as the primary trend of recovery remains intact ahead of year-end expectations. The NGX index action tested the 200-Day Moving Average after crossing the 49,000 level to touch 49,101.57basis points, before pulling back on price correction in MTNN and others.  Already, we have noticed position taking in some of the major sectors of the market continued, especially in industrial goods and banking stocks.

Despite, the seeming negative sentiment on Tuesday, the NGX index sustained its strong momentum at the end of trading, just as all eyes are on the November Consumer Price Index and the changing yield environment that may likely trigger an inflow of funds arising from the excess liquidity in the money market at the moment. This is due largely to the prevailing high dividend yields in the stock market and shorter time frame to achieve similar returns with possibility of capital gains. With the Santa Claus rally around the corner, there is also the year-end window dressing by fund managers, and listed companies who desire to close the year higher.

The topping formation and oscillating volume pattern may finally give way for correction and pullback in the face of the expected closed period notification and 2023 corporate action, just as position taking continues ahead of the full-year earnings season, while bargain hunters and speculators take advantage of this pullback or selloffs to buy low amid a high volatility. Therefore, target companies with a consistent track record of dividend payment with strong fundamentals and growth prospect that will support further price and payout.

Technically, the market is now on the distribution phase, which may set the stage for another uptrend after forming a cup and handle chart pattern on a daily and weekly time frame. The momentum indicators appear strong, as the ADX read 50.58 at the end of the day, just as, RSI and Money Flow Index slowdown to read 77.04 and 88.02 points against the previous session 78.04 and 88.08 points respectively. The continuation of this uptrend depends largely on the interplay of market forces and inflow of funds into market as trading open this last yarding day of the week.

As mentioned earlier, the oscillating volume traded 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 reset in 2023, and beyond expected to create wealth for action takers are underway.

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Oil price oscillation continued, as it trades above $80 at $80.65 per barrel on reopening of some province in Chain after Covid 19 restriction in the midst of geopolitical tension and fear of recession as a result of high interest rate and inflation across the globe. Also, supply tightened due to the Russia-Ukraine war that has been lingering. The up and down movement of oil price also continues to drive volatility.

Meanwhile, Tuesday’s trading started sharply in the green till early afternoon before pulling back on selloffs in MTNN, Insurance stocks and others, a situation that pushed the NGX’s index to an intraday low of 48,820.32bps from its highs of 49,101.57bps before closing slightly below its opening level at 48,899.08bps.

Market technicals were weak and mixed, with lower volume of trade than the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 12% buy position and 88% sell volume. The total transaction volume index stood at 0.93 points, just as momentum behind the day’s performance was strong as Money Flow Index was looking flat at 88.02pts, from the previous day’s 88.08pts, indicating that funds left the market slightly.

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Index and Market Caps

NGX All Share Index, at the close of Tuesday trading fell by 45.54 basis points, closing at 48,853.54 basis points after opening at 48,899.08bps, representing a 0.09% down, just as market capitalization fell  N24.8bn closing at N26.61tr from the previous day’s N26.63tr, which also represented a 0.09% value loss.

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The downturn was driven by profit-taking in MTNN, CAP, Africa Prudential, University Press, SCOA, Jaiz Bank Mansard, Lasaco and Chams among others, which impacted mildly on Year-To-Date gain, increasing it to 14.37%. Market capitalization gain YTD dropped slightly to N3.98tr, representing 19.34% rise over the opening level for the year.

Mixed Sector Indices

Sectorial performance indexes for the session were mixed, as the NGX Industrial goods and Banking, Insurance closed higher by 1.78%, 0.64%, 0.31% respectively, while the NGX Insurance index lost 0.61%.  NGX Oil/Gas and Consumer goods were flat.

Market breadth was negative as decliners outnumbered advancers in the ratio of 15:12; just as activities in volume and value were mixed, after investors exchanged 162.98m shares worth N3.87bn. Volume was driven by trades in Sterling Bank, GTCO, Chams, Zenith Bnak and MTNN.

SMURFIT and Cornerstone Insurance were the best performing stocks, after gaining 10% and 8.70%, closing at N0.22 and N0.50 per share respectively on market forces. On the flip side, SCOA and Chams lost 9.30% and 8.70% respectively, closing at N0.78 and N0.21per share, purely on selloffs and profit taking.

Market Outlook

We expect a rebound and mixed sentiment to continue after TB auction and profit booking as portfolio reshuffling persist ahead of year end seasonality in the face of election uncertainty, as pullbacks add more strength to upside potential, so investors should take advantage of price correction ahead of year end seasonality. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605