Mixed Sentiment May Linger Ahead Of Q3 Earnings, As Pullbacks Create Opportunities

Market Update for October 5
The see-saw movement resurfaced on the Nigerian Exchange Thursday, halting previous losses on a buying pressure across major sectors of the market and into fundamentally sound stocks as bargain hunters continued to cash in on the current pullbacks to reposition their portfolios ahead of Q3 earnings reporting season that is around the corner. Also, the market is looking forward to policy statements from the fiscal and monetary authorities as the new minsters and apex bank leadership roll out economic plans, or agenda to put the economy on a growth path.
Market volatility continued as the benchmark NGX All-Share index closed higher on a low traded volume and positive market breadth, trading within the consolidation range. More companies continue to announce their closed period for Q3 financials expected to start pouring in any moment from next week for early filers. The index’s action adjusted up after the previous session’s selloffs and profit booking.
Amidst concerns over macroeconomic headwinds in the country today, Q3 earnings reports are expected to remain mixed due to the ongoing fiscal reforms by government, at a time of lingering foreign exchange challenges, with the Naira already crossing the N1,000/US Dollar threshold. Owing to the cautious environment pervading the nation’s equity market, it is important that you trade and invest wisely ahead of events and factors that will shape the market in the final quarter of this year. Despite the mixed sentiment witnessed so far, the market’s big uptrend remains intact at above the 50-Day Moving Average, despite testing it in the midst of material shift in the index and the ongoing volatility.
The retracement witnessed at the end of Thursday’s trading creates bargain opportunities in the market, but investors should trade consumer and industrial goods stocks with caution, while repositioning portfolios, targeting services industry stocks with strong fundamentals and earnings power capable of supporting price, and higher dividends payment at the end of the year. These are against the backdrop of the changing market conditions and trading environment due to macroeconomic headwinds, mixed corporate earnings. Others are the prevailing mixed outlook for fixed income instruments yields and rates in the face of rising inflation, high interest rate and exchange rate challenges due to the high volatility in the exchange. However, candlestick formation at the end of the session signals a bearish pattern that supports downtrend, just as the 2008 resistance level turned another strong support level to watch.
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Oil price oscillation continued, pulling back to trade at $83.92 per barrel in the midst of recession fear, stronger US Dollar, substantial shale oil supply and more hawkish central banks moves, in the face of production cuts in some oil producing nations and inflation waves that may affect crude demand. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Thursday’s trading opened in the upside and was sustained throughout the session, despite oscillating on position taking in blue chip companies and others, a situation that pushed the Index to an intraday high of 66,570.19bps from its lows of 66,512.30ps, before closing marginally above its opening figure at 66,570.19bps.
Market technicals were positive and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.67 points, just as the energy behind the day’s performance was weak, with Money Flow Index reading 37.36pts, from the previous day’s 43.42pts, indicating that funds left the market, despite closing slightly higher.
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Index and Market Caps
At the end of Thursday’s trading, the benchmark NGXASI inched up 87.91bps, closing at 66,570.19bps, from its 66,482.28bps opening level, representing a 0.13% up. Market capitalization also rose by N18.21bn to N36.48tr, from the previous day’s N36.38tr, which also represented a 0.13% value gain.
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Meanwhile, the upturn was driven by buying interests and accumulations in Dangote Sugar, Nascon, Wema Bank, Fidelity Bank, CWG, International Breweries, Oando and Nahco, among others. This impacted mildly on Year-To-Date gain which inched up to 29.89%, while Market Capitalization YTD gain stood at N7.76tr, representing a 31.32% rise above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes were in green, save for NGX Insurance that closed in red with 0.06%, while NGX Banking led the advancers after gaining 0.44%, followed by, Consumer and Industrial goods with 0.38% and 0.03% respectively. Just as NGX Energy finished flat.
Market breadth was positive as gainers outpaced losers in the ratio of 24:17, while activities in volume and value terms were down, after players exchanged 357.38m shares worth N3.68bn, driven by trades in Oando, Universal Insurance, Fidelity Bank, Sterling Bank and Ellah Lake.
Wema Bank and Thomas Watt were the best performing stocks, gaining 9.93% and 9.74% respectively, closing at N4.65 and N2.14 per share respectively, on the activities of market forces and sentiments. On the flip side, Champion Breweries and ABC Transport lost 9.87% and 9.72%, closing at N3.38 and N0.65per share, purely on the back of selloffs and profit taking.

Market Outlook
We expect mixed sentiment to continue on bargain hunting and portfolio repositioning ahead of Q3 corporate earnings reports in the face of sector rotation, with all eyes are on the reconvening of monetary policy meeting by CBN.
However, pullbacks are creating ‘buy’ opportunities amidst the economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605