Expect Trend Reversal After Profit-taking On More 2022Q1 Earnings Inflow

Market Update for March 19

Profit-taking resurfaced on the Nigerian Exchange as trading resumed from the long Easter holiday declared by the Federal Government on last Friday and Monday, following which the week’s trading started on a negative outing in the midst of an above average traded volume. There were also a negative market breadth that halted five successive sessions of bull transition, as trader’s cashed out gains from the recent rally.

However, despite this seeming slowdown of the market, the bull is likely to show up in no distant time on bargain hunting in blue-chip and large-cap stocks even as more Q1 numbers expectedly hit the market ahead of the April 30, 2022 statutory deadline for submission of corporate earnings reports for December, March, June and September year end accounts.

Tuesday’s pullback was despite the mixed rates at the last Treasury Bills primary auction by the Central Bank of Nigeria (CBN) in the midst of rising inflation and yields inching up in the fixed income market. The high volume traded during the session also indicates an increase in buying momentum and position-taking ahead of more scorecards hitting the market before the end of the month and after the worker’s day holidays.  

The NGX All-Share index’s action had a negative outing, short living the bull-run and ushering in the distribution phase, even as buying sentiment remain high. This suggests that funds are entering the equity space as players move to hedge against the country’s soaring inflation.

Tuesday’s session witnessed a mixed trading pattern and sentiments in the market confirming that buyers are still in charge, as the NGXASI traded above the 47,500 points to continue its recovery momentum. It is also indicating the possibility of trend reversal on bargain hunters repositioned in fundamentally sound stocks and sectors with positive news that will support growth in Q2 and for the rest of the year despite the uncertainty that comes with the pre-election year.

Investdata Research’s mixed outlook for the month of April and the quarter remains, as the filing of first-quarter earnings reports has kicked off in the midst of corporate actions, qualification, price adjustment, AGM, and payment of dividends by listed companies. However, there is a need to watch the current trends, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There are also the expected market reactions to the dividend markdown and payment dates of the companies on the exchange. We note that the dividend payment dates for Lafarge Africa, Transcorp Plc, and Nigerian Breweries come up this week.  

Meanwhile, market players continue to watch the nation’s economic developments and what is happening in the fixed income market with yields and rates, even as all eyes are already on plans announced by the CBN during the last Monetary Policy Committee (MPC) meeting to intervene in the distribution of premium motor spirit and diesel. The aim is to ease the pains of the scarcity among manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.

Despite, the profit-taking spree, investors and traders should watch their stop-loss and profit targets to adjust positions and take profit as their target is met. Tentatively, the marginal uptick in inflation and oscillating oil prices may support the flow of funds into stocks depending on the state of this Q1 scorecards.

The Eastern European crisis and subsiding cases of COVID-19 in China, resulting in gradual reopening after the lockdown in some provinces have continued to influence commodities prices, especially crude oil which rebounded in the international market to trade above $105 per barrel, after touching $120.27 in the previous days. This has continued to push production costs up, worsening inflationary pressure across the globe and weakening economic outlooks for 2022 and 2023, thereby influencing the monetary policy of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession.

However, we warn that market corrections are not over yet because profit-taking is part of the market dynamics, hence the need to rely on your stop-loss effectively. This is because the uptrend signals that profit-taking is underway, especially when it gets to the level where it pulls back.   

Tuesday’s candlestick formation confirms that buyers are in control, a trend that may lead to reversal, depending on market forces as all eyes are on companies’ Q1 results. The NGX index’s action has tested a major resistance level of 47,600.37 basis points, trading above its 20-day moving average, as volatility persists and the pullback towards the next support level is sported around 47.465.17bps. Should the index break this point, the next visible level is 47,385,27 points.

Technically, the NGX index is making a higher low, as the session witnessed strong positive sentiment that could be linked to the repositioning of portfolios ahead of Q1 numbers and reaction to corporate action dates. The possibility of the market sustaining this trend is a function of the state of Q1 numbers and improved economic condition during this Q2, following which we advise investors to play defensive with sectors having strong demand and dividend stocks to reduce investment risks around the market.

Meanwhile, Tuesday trading started on the downside and it was sustained for the rest of the session, despite oscillating on buying interests and profit-taking, a situation that pushed the NGX’s index to an intraday low of 47,459.18 basis points from its highs of 47,551.72bps, before closing slightly below its opening point at 47,545.86bps.

Market technicals were positive and mixed as volume traded was lower than the previous day, in the midst of breadth favoring the bears on buying sentiment as revealed by Investdata’s Sentiments Report showing 94% ‘buy’ volume and 6% ‘sell’ position. The total transaction volume index stood at 1.05 points, just as the momentum behind the day’s performance remained strong with Money Flow Index looking up at 70.55pts, from the previous day’s 60.68pts, indicating that funds entered the market despite profit booking.  

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Index and Market Caps

At the end of Tuesday, the composite NGX index shed 35.48bps to close at 47,545.86bps, after opening at 47,558.45bps, representing a 0.03% drop. Similarly, market capitalisation fell by N5.23bn, closing at N25.63tr, from the previous day’s N25.64tr, which also represented a 0.03% value loss.

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Tuesday downturn was driven by profit booking in stocks like Lafarge, Zenith Bank, UBA, NB, ETI, PZ, and Nascon, among others. This impacted mildly y on Year-To-Date gain, which drop to 11.31%. Market capitalization growth stood at N2.81tr YTD, representing a 15.01% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were in red, except for the NGX Consumer goods which closed 0.25% higher, while NGX Banking led the decliners after losing 0.31%, followed by Insurance, Energy and Industrial goods with 0.29%, 0.02% and 0.01% respectively.

Market breadth was negative, as losers outnumbered gainers in the ratio of 31:21; just as transactions in volume and value terms were mixed, as investors exchanged 365.459m shares worth N7.11bn. Volume was driven by trades in Fidelity Bank, Accesscorp, MTNN, Omatex and RT Briscoe.

Meyer and Guinness Nigeria were the best performing stocks after gaining 10% and 6.86% respectively, closing at N1.76 and N74.80 per share respectively on market sentiment and Q3 earnings expectation. On the flip side, Academy Press and John Holt lost 9.72% and 9.30% respectively, closing at N1.30 and N0.78 per share, on profit-taking and selloffs.

Market Outlook

We expect a reversal of trend after profit-taking, on expectation of more Q1 2022 earnings reports. This is expected to support uptrend during this earnings season, amidst oscillating  oil prices, just as the market continues to interpret economic data in relationship with 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, while the International Monetary Fund is calling for a hike in the interest rates and further devaluation of the Naira.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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