Investors Stay Cautious, Await Pullbacks As Money Flow Index Drops

Market Update for June 18

Selloffs and profit taking continued on the Nigerian Stock Exchange Thursday with the benchmark index closing lower and halting previous day’s gain on lower traded volume which reflected the continued indecision and cautious trading among investors. 

The Nigerian stock market equally joined its counterparts across the globe to pullback amidst fear of a resurgence of the Coronavirus pandemic and dwindling oil prices that impacted negatively on equities.

This added to the mixed macroeconomic data that shows the impact of the lockdown to curtail the spread of the virus.

Day traders dominated the market, displaying their nature by pushing stock prices up in the morning, only to sell down between the midday and afternoon as the market continued to search for direction while sideways trending. The present economic realities in Nigeria, especially with inflation rising to 12.4% in May, close to the recently adjusted 12.5% Monetary Policy Rate of the Central Bank of Nigeria (CBN), calls for another rethink while you seek investment windows to protect your money and hedge against inflation.

The ranging market has shown low momentum and volatility as funds continue to exit stocks due to profit booking and sell down, as revealed by Money Flow Index reading 52.66, while the Bollinger band tightens, indicating low activity. The NSE benchmark index’s side trending pattern for over two weeks has also trapped traders in their respective positions.

The bearish vs bullish path on the exchange at the close of Thursday trading finds a tight up against the underside of its 20-Day Moving Average, leaving the key performance index with a choice of either to make a bearish move and breakdown the 21 DMA support or take the bullish options.

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Meanwhile, Thursday’s trading started on a green note as Guaranty Trust Bank gapped up into the midday before losing its early gains on sell down and profit taking that hit banking and consumer goods stocks. This pushed the index to an intraday low of 24,913.26 basis points, from its high of 25,054.28bps, before closing the session lower at 24,933.41bps.

Market technicals for the day were negative and weak, with lower volume traded than the previous session’s in the midst of flat breadth and negative sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 86% and buy volume of 16%. Total daily transaction volume index stood at 0.58, just as energy behind the day’s performance stayed relatively strong, with Money Flow Index reading 52.66points, dropping from the previous 64.34ps. This indicates that funds are seriouslyleaving the market on profit taking and selloffs.

Index and Market Caps

At the end of Thursday’s trading, the All Share index dropped 39.48points, closing at 24,933.41bps, from the 24,972.94bps, representing a 0.16% slide, while market capitalization lost N20bn at N13.01tr from an opening value of N13.03tr, representing a 0.16% depreciation in value.

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The day’s downturn was driven by price depreciation of Nigerian Breweries, Access Bank, Fidson, Neimeth Pharm, NPF Microfinance and Jaiz Bank. This impacted mildly on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 7.11%, while market capitalization YTD gains stood at N48.95bn, representing a 0.47% rise from the year’s opening level.

Mixed Sector Indices

The sectorial performance indexes were mixed as the NSE Insurance and Oil/Gas indexes closed 1.21% and 0.43% higher respectively, while the NSE Consumer Goods and Banking indexes fell by 1.83% and 0.05% respectively, just as NSE Industrial goods closed flat. 

Market breadth was mildly flat as the decliners outnumbered advancers in the ratio of 10:9, while transactions in volume and value terms were down by 35.63% and 18.39% respectively to 171.21m shares worth N2.21bn, from the previous day’s 265.94m units, valued at N2.71bn. Volume was boosted by trades in FCMB, Guaranty Trust Bank, FBNH, UBA and Access Bank

C & I Leasing and AIICO Insurance were the best performing stocks for the day, after gaining 9.52% and 8.99% respectively, closing at N4.60 and N0.97 per share respectively on low price attraction and market forces.  On the flip side, Fidson Healthcare and Nigerian Breweries lost 9.71% and 9.52% respectively, closing at N3.07 and per N38 share respectively on profit taking.

Market Outlook

Market dynamics reveal that players are afraid of buying at this level, waiting for pullbacks to take a plunge as money flow index is looking down, indicating that funds are leaving the market, despite flowing from one sector to another seeking value in term of low prices with high upside potentials.  This is just as economic recovery is expected to come fast on government and CBN interventions, ahead of Q2 earnings reports, implying yet that opportunities are still available as sectorial rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

However, the market’s high dividend yield continues to attract buying interests, as few auditedand unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 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.

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 Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467