Expect Trend Continuation On Declining Yields, Bargain Hunting, Portfolio Reshuffling

Market Update for December 14

The bulls resurfaced again on the Nigerian Exchange at the midweek on a strong momentum and buying sentiment, as the benchmark NGX All Share index closed higher on a positive market breadth and low traded volume. At the same time, it formed a top reversal pattern that supports correction or profit taking, depending on market forces.

All eyes are on the expected major macroeconomic report- the consumer price index for November, which will further guide investment decisions in the midst of the changing yield environment and increasing system liquidity. Midweek’s TB primary market auction rates and yield suffered a further decline across all tenors to 5.5%, 7.3% and 9.89% for the 91, 182 and 364-day periods respectively. This may likely trigger return of funds into the equity space, and may be fueling the ongoing uptrend and recovery, especially for high dividend paying companies with strong earnings.

Renewed buying interest in some high, medium and low cap stocks supported the rebound as mentioned in our earlier update, thereby creating 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 crossed the 200-Day Moving Average slightly to confirm strong strength after touching 49,045.36 basis points to slide to 48,988.04bps.   Already, we have noticed position taking in industrial goods.

Despite, the negative sentiment across some major sectors, the NGX index sustained its strong momentum at the end of the day trading. 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 in the distribution phase, and may set the stage for another uptrend after forming a cup and handle chart pattern on a daily and weekly time frame.  But there is a divergent between the index action and MACD which also support pullback, so let us eye our gaze on market forces.  The momentum indicators appear strong but mixed, as the ADX read 51.07 at the end of the day, just as, RSI and Money Flow Index slowdown to read 77.90 and 87.78 points against the previous session 77.04 and 88.02 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 noted 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.

To navigate the rest of the year 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 low volume of transaction witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil price oscillation continued, as it trades at $82.21 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.

Midweek trading opened in the upside and it was sustained throughout the session, despite oscillating on profit and position taking across the high, medium and low stocks, a situation that pushed the NGX’s index to an intraday high of 49,045.36bps from its lows of 48,853.54bps before closing above its opening level at 48,988.04bps.

Market technicals were weak and mixed, with lower volume of trade than the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 70% buy position and 30% sell volume. The total transaction volume index stood at 0.51 points, just as energy behind the day’s performance was strong as Money Flow Index was looking down at 87.782pts, from the previous day’s 88.02pts, indicating that funds left the market slightly, despite closing in the green.

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Index and Market Caps

At the end  of Wednesday’s trading, the composite NGXASI gained 134.50bps, closing at 48,988.04bps after opening at 48,853.54bps, representing a 0.29% up, just as market capitalization rose by   N73.26bn closing at N26.68tr from the previous day’s N26.61tr, which also represented a 0.29% appreciation in  value.

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Meanwhile, the upturn was driven by buying interest in BUA Cement, Nascon, Learn Africa, RedStar Express, Livestock, SCOA and Nahco among others, which impacted positively on Year-To-Date gain, increasing it to 14.68%. Market capitalization gain YTD increased slightly to N4.06tr, representing 19.62% rise over the opening level for the year.

Bearish Sector Indices

Sectorial performance indexes for the session were down, except for NGX Industrial goods that closed higher by 1.46%, while the NGX Insurance led the decliners after losing 0.85%, followed by Consumer, energy and banking with 0.44%, 0.15% and 0.07% respectively.

Market breadth turned positive as gainers outnumbered loser in the ratio of 16:12; just as activities in volume and value were down, after investors exchanged just 88.04m shares worth N1.68bn. Volume was driven by trades in GTCO, Zenith Bank. Jaiz Bank, Sterling Bank and Ucap.

Redstar Express and Chams were the best performing stocks, after gaining 9.71% and 9.52%, closing at N2.26 and N0.23per share respectively on market forces. On the flip side, Prestige Assurance and Multiverse lost 8.70% and 8.51% respectively, closing at N0.42 and N3,981per share, purely on selloffs and profit taking.

Market Outlook

We expect the trend to continue on declining yields in fixed income market and positioning by bargain hunters 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

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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