Likely Uptrend Slowdown On Profit-taking, Ahead Portfolio Rotations

Market Update for May 9

The nation’s stock market opened the week on another positive note, extending the bull dominance for the 17th successive session as market players continued to accumulate positions across some major sectors and stocks in strong groups with impressive earnings and high upside potentials.

More company share prices hit new 52-weeks highs, thereby further pushing the benchmark NGX All Share Index higher, as it broke out the 51,000 psychological line and several resistance levels, however, on a low traded volume in the midst of increased buying interests in telecom and consumer goods stocks. Also, there were activities in blue chips that posted better-than-expected Q1 earnings, especially industrial goods, agribusiness, and energy, among others. This has also pushed the market to a 15-year high on the back of strong positive sentiments, as stocks provide strong earnings yields that offer protection against inflation. 

Investors continue to digest corporate earnings and the latest macroeconomic data, as fixed-income yields declined in the face of the body movement from the CBN’s monetary policy and posture, signaling a slim possibility of rate hike in the forthcoming meeting. The expected April consumer price index is likely to tick up, as inflationary pressure continued globally on the ongoing war in Ukraine and geopolitical concerns.    

The bullish trend was attributed to investors searching for stocks with good fundamentals and positive returns above the inflation rate, while the NGX index’s action has broken out several resistance levels on a wave 3 and positive market breadth. Also notable is the fact that players are keenly observing what is happening on the nation’s economic front, in the face of another Central Bank of Nigeria (CBN) Treasury Bills primary market auction.

Despite the coming auction, funds have continued to flow into the equity space, as investors and traders seek to hedge against the spiraling inflation. Stakeholders are, however, anxiously awaiting the plans by the CBN to intervene in the petrol products sector, which as announced is targeted at making premium motor spirit and diesel available, thereby easing the pain of manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.

As stated earlier, buying interests and positive sentiments continued to move the market Monday in the face of mixed volume patterns and increased positioning in blue chips on the strength of their earnings power. Tentatively, the continued mixed direction of fixed income market yields and TB rates may continue supporting the flow of funds into the stock market, on strong demand for stocks in this prevailing uptrend and positive sentiment amidst the ongoing war in Ukraine that has influenced the global markets in recent times.

Noteworthy also, is the oscillating oil price above $104 per barrel on the international market, in the midst of the EU’s embargo on the importation of Russian oil, increase in production output by OPEC, and resurgence of the Covid 19 in some provinces in China that resulted to lockdown in affected areas. The high cost of crude oil is pushing production costs up, heightening inflationary pressure across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession. The uptick in domestic inflation is a potent threat to the fixed income market and investment yields, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.

The strong momentum, buying interests, and increased liquidity at this point have created ‘buy’ signals for discerning traders as smart money makes efforts to push up the equity prices. However, we warn that market corrections are underway as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point, even as the markup phase signals continuation, especially when the high cap stocks that control 70% of market capitalisation move up ahead of reactions to their earnings and expected dividend payments in May and June 2022.   

Monday’s candlestick formation at the close of trading showed that buyers are still in control, a situation that may likely enhance a continuation or reversal, depending on the interplay of market forces. The NGX index’s action sustained its uptrend, breaking out 51,200.58 basis points to test 51,956.75bps, while remaining in the markup phase, trading above the ‘T-Line’ and 20-day moving average. The market remains strong as it heads towards the strong resistance 52,641.55bps region, while volatility persists and uptrends towards the next breakout sported around 52,186.78bps. Should the index break this point, the next visible resistance is 52,412.54bps.

Technically, the NGX index action has rallied on impressive earnings and strong demand for stocks. The possibility of the market sustaining this trend is high as a function of stronger corporate earnings and improved economic conditions during this season, following which we advise investors to play defensive stocks to reduce investment risks around the market.

Meanwhile, Monday’s trading opened on the upside and was sustained throughout the trading session on strong demand for blue-chips stocks, a situation that pushed the NGX’s index to an intraday high of 51,956.75bps from its lows of 50,922.91ps, before closing above its opening points at 51,902.48 bps.  

Market technicals were positive and strong as volume traded was lower than the previous day’s in the midst of breadth favoring the bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 95% ‘buy’ volume and 5% sell position. Total transaction volume index stood at 1.04 points, just as momentum behind the day’s performance remained strong with Money Flow Index looking flat at 95.75pts, from the previous day’s 95.76pts, indicating that funds entered the market.

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Index and Market Caps

At the close of the trading session, the benchmark NGX All-Share index gained 968.41bps to close at 51,903.44bps, after opening at 50,937.03bps, representing a 1.92% growth. Similarly, market capitalization rose by N521.56bn, closing at N27.98tr, from the previous day’s N27.46tr, which also represented a 1.92% appreciation in value.

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Monday’s upturn was driven by demand for the shares of MTNN, NB, Cadbury, Presco, UACN ETI, Fidson, Lafarge, Conoil, Vitafoam, GSK, and Oando, among others. This impacted positively on Year-To-Date gain, which increased to 21.50%. Market capitalization growth stood at N5.75tr YTD, representing a 25.49% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Banking closed 1.27% and 0.28% lower respectively, while NGX Consumer goods led the advancers after gaining 2.15%, followed by Energy and industrial goods with 0.47% and 0.21% respectively.

Market breadth remained positive, as gainers outnumbered losers in the ratio of 36:21; just as transactions in volume and value terms were mixed after investors exchanged 337.56m shares worth N5.55bn. Volume was driven by trades in Transcorp, GTCO, Zenith Bank, Accesscorp, and FBNH.

Nigerian Breweries and Cadbury were the best-performing stocks for the session, gaining 10% and 9.965 respectively, closing at N77 and N14.90per share respectively on impressive Q1 earnings and market forces. On the flip side, Transcorp Hotels and Guinness Nigeria lost 10% and 9.59% respectively, closing at N4.05 and N99.45 per share, on profit taking.

Market Outlook

We expect a slowdown in the uptrend on profit-taking ahead Airtel Africa’s full-year result expected to hit the market on Wednesday, and portfolio rotations as market players digest the better-than-expected Q1 corporate earnings released, ahead of March year-end 2022 audited financials with dividend announcements to support uptrend in the new month amid the rebound in oil prices. Also, 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, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund has projected the nation’s economy to grow by 3.4% on rising oil price in the international market.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605