Equities

Mixed Performance, Amidst Profits Taking, Even As Bull Transition May Linger

Market Update for January 18

After a healthy rally in the previous week, trading on the Nigerian Stock Exchange (NSE), Monday witnessed mixed sentiments and profit booking in manufacturing stocks amid renewed buying interest in Guaranty Trust Bank, Lafarge Africa, Cadbury, Vitafoam, BOC Gases and Livestock Feeds. These however failed to help the benchmark All-Share index, as it closed lower on a very high traded volume and positive breadth.

The change in trading pattern and the holding structure has supported the market so far, despite profit taking during the session as all eyes are on medium and low priced dividend-paying stocks with high yields. 

We have always reminded all that market correction, or profit taking is an integral part of stock market investing. As such, Monday’s pullback was not a surprise, even as the NSE index and price action of many stocks are still technically at overbought region.

Also, at the risk of sounding like a broken gong, we have often enjoined investors to trade with caution in this season, when earnings reports are expected to start pouring in anytime soon. That notwithstanding, the bulls are quite strong around the market arena, and the lead index looks good enough to stay further in the overbought region, despite the oscillating oil price as the nation’s external reserves rises further.

Nevertheless, given the trading pattern and sharp uptrend that brought the key performance index to this current level, we suggest that investors should take profit in positions they have given them over 20-30% so far. 

Meanwhile, Monday’s trading started slightly in the upside and pulled back between mid-morning to midday before vacillating in the late afternoon on positioning in dividend paying stocks and profit booking that pushed the benchmark index to an intraday low of 40,830.65 basis points, from its highs of 41.234.99bps, before closing below its opening level at 41,082.38bps.

Market technicals for the day were mixed and positive as volume traded was higher than the previous day’s in the midst of breadth that favoured the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 62% ‘buy’ volume and 38% sell position with total transaction volume index of 2.14 points. Also, the momentum behind the day’s performance remained relatively strong, as Money flow index fell to 53.90pts, from the previous day’s 64.16pts, indicating that funds left the market in the aftermath of the profit taking in some stocks.

Index and Market Caps

The All Share index at the end of Monday’s trading shed 93.76 basis points, closing at 41,082.38bps after opening at 41,176.14bps representing a 0.23% drop. Similarly, market capitalization fell by N39.54bn, closing at N21.49tr from N21.53tr, representing a 0.18% value loss.

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Monday’s downturn followed selloffs in Dangote Cement, FBNH,, Guinness, NASCON, Flour Mills, GSK, Neimeth Pharm, and Japaul Gold, among others, a situation that cut Year-To-Date gain mildly, bringing it to 2.02%, just as YTD gain in market capitalization stood at N433.89bn which represented a 2.06% growth.

Mixed Sector Indices

Performance indexes across the sectors were mixed with the NSE Consumer and Industrial goods sliding by 0.62% and 0.43% respectively, while Insurance led the advancers after gaining 5.98%, followed by Oil/Gas and Banking thatclosed 0.02% and 0.01% marginal high respectively. 

Market breadth remained positive, as advancers outweighed decliners in the ratio of 35:21; just as transactions in volume and value terms were mixed, after stockbrokers traded 738.52m shares from the previous 666.61m units, while value fell by 34.76% to N4.17bn from N6.4bn. Volume continued to be boosted by Japaul Gold, joined by Universal Insurance,Transcorp, FBNH and Mansard AXA.

Cadbury and Aiico were the best performing stocks for the day after gaining 10% each, closing at N10.45 and N1.32 per share, on market sentiments and earnings expectation respectively. On the flip side, Japaul Gold and Flourmill lost 6.58% and 5.49% respectively, closing at N1.42 and N31 per share, on market forces and profit taking.

Market Outlook

We expect the mixed performance, profits taking and the bull transition to continue as revealed by candlestick which resisted decline, just as profit booking and buying interests in undervalued and dividend-paying stocks persist ahead of the market’s major earnings reporting season. This is especially as low interest rates and oil price have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, while all eyes are on the outcome of next week’s MPC meeting and its outcome to give the market direction.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued state of the market offers investors 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 in the rest of the year.

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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, 08032055467

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