Market Update for May 7
Thursday’s trading on the Nigerian Stock Exchange maintained a positive stance as prices of large-cap stocks jumped on increasing demand, ahead of their dividend qualification dates amidst profit booking in banking equities and oscillating oil prices that rallied to $31.45 per barrel. Brent crude broke out the $30pb resistant level amid signs that oil demand is on the increase after countries across continents started to ease the lockdowns put in place to curb the Coronavirus pandemic.
Technically, the market had mixed sentiment during the session, extending to its ninth successive day of the rally with the key performance index closing higher on a reducing magnitude of gains, but very high traded volume.
This is why investors must understand certain things in stock markets, especially what is currently happening to the Nigerian market and economic fundamentals, alongside emerging global events and data. To identify real opportunities for superior investment or trade, investors must be aware of what is happening in the environment, by filtering the market noise and media-induced fear or hype.
Obviously, the market is still very bullish in terms of the current overall market trend, but technical tools signal a short-term overbought in this recovery move, indicating that a pullback is underway in form profit-taking or short-term price correction. Yes, our daily time frame did support a bullish transition within this long-term bearish bull rally on the NSE. There is an opportunity to take a bullish trade within a long bearish index movement, but there must be a good exit strategy at every moment of the season.
Meanwhile, Thursday’s trading started slightly on the upside in the early hours but pulled back at mid-morning on profit-taking, and oscillated for the rest of the session, closing in the green by pushing the NSE’s composite index to an intraday high of 24,369.70bps, from a low of 24,039.70ps. Thereafter it closed higher at 24,354.25ps on a flat breadth.
Market technicals for the day were positive and mixed with higher volume traded than the previous session, in the midst of a flat breadth and positive buying sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 95% and sell position of 5%. Total daily transaction volume index stood at 1.74, just as the momentum behind the day’s performance stayed strong, with Money Flow Index reading 88.94 points, slightly up from the previous 88.39ps, indicating the entrance of funds in a strong market and some stocks.
Index and Market Caps
At the end of Thursday’s session, the NSE All-Share index gained 210.88bps, closing at 24,354.25ps, from the opening level of 24,143.37bps, representing a 0.87% gain, while market capitalization rose N109.90bn higher to N12.69tr, from the opening value of N12.58tr representing a 0.87% appreciation in investors’ portfolios.
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Thursday’s advancement was impacted by the demand for Nestle, Dangote Cement, BUA Cement, Nigerian Breweries, Conoil, Ardova, FBNH, Transcorp, and Honeywell, which impacted positively on the NSE benchmark index, reducing its Year-To-Date loss to 9.27%. Also, market capitalization YTD decline reduced to N266.09 bn, representing a 2.05% drop from the year’s opening level.
Bullish Sector Indices
Performance index across the sectors was bullish for the day, except for the NSE Banking that closed 1.98% lower, while the NSE Consumer Goods led the advancers, after gaining 2.37%. It was followed by the NSE Industrial Goods with 1.96% notch, Insurance and Oil/Gas indexes inched 0.93% and 0.57% higher respectively.
Market breadth, was flat and positive as advancers outweighed decliners in the ratio of 21:20, while market activity in terms of volume and value was up by 1.16% and 28.29% respectively to 431.58m shares worth N5.25bn from the previous day’s 426.64m units valued at N4.1bn. The volume for the session was driven by trades in FBNH, Zenith Bank, Guaranty Trust Bank, ETI, and Mutual Benefits Assurance.
Thursday’s best-performing stocks were Royal Exchange Assurance and University Press, gaining 10% and 9.80%, closing at N0.22, and N1.12 per share on market forces and 2020 full-year expectation. On the flip side, Linkage Assurance and Redstar Express lost 8.33% and 5% respectively, closing at N0.44 and N2.85 per share respectively, on profit-taking and market forces.
We expect profit-taking on Friday, being the last trading session for the week as the market enters the short-term overbought region, with RSI reading 70.08 points, even as the NSE index continue its recovery. This is coming ahead of markdown dates of blue-chip companies, more corporate earnings, and the 2020Q1 GDP, just as MFI reveals that smart money participation is high as the lockdown is gradually being eased, despite the rising virus spread and oscillating oil prices after the crash.
However, the market’s high dividend yield continues to attract buying interests, while more audited corporate earnings hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.
Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.
Again, the current undervalued state of the market offers opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation going forward.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.
NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 0803205546