Market Update for the Week Ended  August 23 and Outlook for  August 26-30

Mixed sentinment on the  Nigerian Exchange (NGX) continued as the composite NGX All-Share index closed lower for the week, extending the negative outing for a second consecutive week. This mirrored the historical data with the month of August recording down market in 18 years, while rising in 8 years, paving way for buying opportunities ahead of the Q3 window dressing in sepetember, the earnings reporting season in October and fourth quarter seasonality that comes with end of the year. Profit taking and selloffs in highly capitalised stocks weighed heavily on the market, even as the index’s action resisted further decline, forming a hammer candlestick pattern that signals that a reversal of trend is underway.

Microeconomic data for the period remains mixed with inflationary pressure easing, while remittance inflows is on the rise according to recent reports from the National Bureau of Statistics and the Central Bank of Nigeria respectively, amid the impact of base effects and the harvest season that impacted on the consumer price index for the month July. There are also CBN reforms that bolstered FX availability, easing the lingering exhange market challenges to attract more inflow into the economy. This improvement in remittances is likely to address shortage in FX, especially if the nation’s crude oil production increases to the target two million barrels per day level, as efforts are being intensified to improve export potential of the non oil sectors through supportive fiscal and monetary policies capable of boosting FX liquidity and impacting prices positively, while keeping inflation southward.

The NGX volalility resulted from portfolio reshuffling and sector rotation on the back of corporate scorecards released to the market recently, while  selloffs in the building material sector created opportunities for investors. Since every investment is against the future expectation, government policies, company information, macroeconomic data and others that influence prices in the short to long-term should guide your investment decisions as you follow the trends and changes in the market. Better understanding of the big picture of the market and our actions as market players in any market cycle would determine your results or returns ultimately.

The momentum and sentiment of the market is changing, as players digest quarterly earnings, slowdown in inflation and TB auction rates, just as all eyes are on banking stocks, especially those with half-year interim dividend payment history. Despite the rising economic headwinds being witnessed today, there is also the ongoing economic reforms of the government and challenges in the exchange market which continue to impact investor confidence with the unfolding economic policies.

Technically, the market still weak, as NGX index action trades below the T line on a weekly chart but above 50 SMA and  EMA for same period. With the hammer candlestick formation at the end of the week under review, the possibility of reversal  is high in the new week.  The sentiment report for the period revealed a mixed sentiment of 48% buy position and sell volume of 52% as MFI looked down slightly to reads 55.32 points which indicates that funds left the market during the week. The Positive market breadth for the period occurred in the midst of position taking and selloffs. As bargain hunters  took advantage of pullbacks to buy into fundamentally sound  companies with high yield, strong earnings power and  low valuation.

To navigate the rest of Q3 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays. Also, get investdata’s Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent corrections and pullbacks to continue the markdown phase. As volume of transaction witnessed within the week remain high, it is time to go shopping for undervalued stocks, sector rotation and the next insider dealing opportunity.

Oil price rebounded on Friday, after the comment by Feds chairman about a likely rate cut, trading at $79.02 per barrel on hopes of improved demand and possibility of casefire talks in the Middle East. There is also the increasing  geopolitical tensions around the world that threatens supply, coupled with ongoing war between Ukraine and Russia which continues to disrupt oil output in the face of osculating price and supply cut by OPEC to manage price. The up and down movement in oil price continues to drive volatility across different investment windows and inflation that is slowing down in mature economies.

Movement Of NGXASI

The NGX witnessed a bearish trend during the week with the index’s action recording three sessions of down market and two days of positive outing  to close below the 96,000 psychological line on a high traded volume and positive market internals in the face of mixed sentiments during the period. The share prices of Custodian Investment, Redstar Express and Cutix were adjusted for dividends of 15 Kobo, 27Kobo and 0.15 kobo respectively. Coupled with one for one bonus from Cutix.

The week’s trading started negative, extending the previous  loss position when the index closed 1.36% lower on Monday, a trend that was short-lived on Tuesday when the market inched 0.12% up, before the reversal at the midweek on profit taking and selling sentiment as the benchmark index shed 0.07%. The trend was sustained on Thursday as the NGXASI  lost 0.12% on selloff in Dangote Cement, before the rebound on Friday with the index gaining 0.27%. This brought the week’s total loss to 1.16%, compared to the 1.51% negative position in the previous week.

Specifically, the NGX All-Share Index lost all of 1,126.86 basis points, closing at 95,973.45bps, from previous week’s 97,100.31bps closing level, after touching an intra-week low of 94,563.21bps from a highs of 97,505.39bps. Market capitalisation was flat  at  N55.13tr, representing a 0.004% value gain. As a result of supplementary listing of International Breweries 141.4 billion shares worth N516.2 billion.

Top advancers’ table for the week was dominated by medium and low priced stocks in the midst of buying interest and low valuation ahead of banking results hitting the market. Also notable was the fact that market players were taking advantage of the pullbacks  to reposition their portfolios  and carrying out sector rotation.

Market technicals for the period were positive and strong as revealed by volume and market breadth, with advancers outnumbering decliners  in the ratio of 43:48 on a mixed sentiment as indicated  by investdata sentiment report showing  48% ‘buy’ volume and 52% sell position. Money Flow Index was down at 55.32 points  from the previous week’s 56.90 points, an indication that funds left the market on a weekly time frame.

Technical View

The NGX index’s action at the end of the week formed a hammer candlestick pattern that signaled trend reversal, which needs to be confirmed in the new week, as all eyes are on  banks half year financials and other macroeconomic reports that are  expected to hit the the market in the face of  changing momentum and sentiment, especially from the energy and  financial service providers companies. Buying interest for the period in the face of low valuation and interpretation of decline in TB auction  rates and inflation, even when higher yields in the alternative market still remain below inflation rate.

Already, the index has entered its markdown phase on the weekly chart. We note that 96,843.07 and  94,538.12bps are strong support levels on the daily and weekly time frame, even as the index on the weekly time frame is on downtrend. The market is at a critical zone as all eyes are on more banks results  to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that buyers and sellers are fighting for dominncy, as revealed by the mixed sentiment and positive market breadth, as the index is trading below the T line and  above 50-Day Moving Average on the weekly chart.

Mixed Sectoral Indices

The sectoral indexes of the week were mixed, as NGX Industrial  and Consumer Goods closed lower by 4.94% and 1.425 respectively, while NGX Oil/Gas Index  led the advancers after gaining 3.54%, followed by Insurance and Banking  with  1.90% and 0.37% respectively.

Transactions  in volume and value were mixed, as players exchanged 5.64bn shares worth N33.05bn, compared to previous week’s 2.03bn units valued at N42.16bn. Volume was driven by Financial Services, Oil/Gas industry and Services industry,  boosted specifically by  Standard lnsurance,Jaiz Bank , GTCO, Oando and Transcorp.

RT Briscoe and Tantalizers  were the best performing stocks during the week, gaining 59.41and  54.55% respectively, closing at N2.71 and N0.68 per share on market forces and sentiment. On the flip side, Cutix and Dangote Cement lost 37.27% and 10% respectively, at N3.10 and N532.00 per share, on price markdown for dividend and selloffs.

Outlook for the week

We expect a mixed sentiment to continue on bargain hunting and sector rotation. Also, as more banks earnings reports are likely to hit the market in the face of portfolio rebalancing. As mplayers take advantage of pullbacks to buy into value stocks. As investors are watching with rapt attention.

However, retracement to the 96,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605