Market Update for the Week Ended February  9 and Outlook for Feb 12 – 16

Profit taking and panic selling on the Nigerian Exchange last week halted 15 consecutive weeks of positive outings, as market players reassess the higher yields in the fixed income market amid the earnings season and expected dividend recommendations. This is coinciding with the inflow of macroeconomic data and the Central Bank of Nigeria’s policy meeting.

Already, the pullbacks and corrections are creating new entry opportunities for discerning investors and traders, as they target dividend paying stocks with history of growing their payouts. The unaudited  full-year numbers released so far have given an insight into the possibility of either dividend growth or cut by the various companies.

As the earnings reporting season enters its peak with audited accounts and corporate actions from early filers hitting the market any moment from this new week, investors should avoid little known stocks, especially those low cap companies with little or no history of dividend payments. You may re-enter after this period on the strength of their first quarter scorecards and growth prospect of such companies as events unfold in the new financial year.

Consequently, all eyes are on such early filers as United Capital, Africa Prudential, Zenith Bank, Nigerian Breweries, MTN Nigeria, GTCO, Infinity Trust Mortgage Bank, and Dangote Cement, among others.

Despite the seeming rebound on the last trading day of the week, investor sentiment and market breadth deteriorated during the period, even with bargain hunters trying to take advantage of the pullbacks in the face of the market disconnecting from economic realities. With government’s ongoing reforms yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even summersult altogether.

The needed handshake of fiscal and monetary authorities if they more chart a new course for the economy is not clear from these cocktail  policies made so far, especially given the hawkish disposition of the CBN in its bid to attract foreign investors and checkmate the rising inflation. This will further slowdown the economy as foreign exchange challenges lingers  in the midst of the worsening insecurity across the country. Also, it is no news that the hyper-inflationary environment continues to threaten real  returns on fixed income instruments which have remained negative.

Markets  across the globe recorded  a positive performance for the period under review  on the strength of impressive corporate earnings that were made available at the different domains, coupled with stronger than expected macroeconomic initiatives across the US and Europe. Recall that the Feds chairman did warn of possible rates cut in March which has changed market sentiment. The MSCI index that measures global market performance closed higher by 0.8%  for the week.  As more earnings, macroeconomic data like CPI, employment reports, GDP, PMI and others  will shape the market in the new week.

Traders and investors  hedged against a potential downturn, corrections and pullbacks by not being fooled by the recent rebound on the NGX as prices are still at overbought region. The pullback on profit taking is creating buy opportunities, despite the fact that the  key performance index remained above 100,000 psychological line, after  pulling back from the all time high of 105,005.82bps.

Market players should, therefore, wake up and trade intelligently and smart to avoid being trapped in any position. While this is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 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 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 breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain high traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price  rebounded for  the weekly gain  as it trades  above the  $80 at $82.19 per barrel following Iseral disagreening on the Hama ceasefire in the midst of US falling inventory. As major central banks of the world left rates unchanged in the first policy meeting of 2024 amidst the lingering tensions in the Middle East and disruption in oil output. The  mixed global macroeconomic data as inflation resurfaced put pressure on oil prices. As oil demand outlook remains mixed in the midst of uncertainty around rate cut. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

It was the first negative week on the NGX as highly priced stocks suffered losses amid profit booking and  portfolio realignment in the face of higher yields in the fixed income market. The index recorded four trading sessions of down markets, and one day of up market to close lower on  low traded volume and negative market breadth after forming top reversal chart patterns in the midst  of  selling sentiments and  volatility, as bargain hunters continued to take advantage of pullbacks.

The week’s trading opened on a negative note, halting the previous gain after losing 0.73% on Monday. This was continued till Thursday on selloffs and profit taking, as the composite index shed  1.50%, 0.01% and 0.86% respectively on Tuesday, midweek and Thursday. The market recorded a weak rebound on Friday, with the NGXASI gaining  0.62% on bargain hunting across the major sectors of the market. This brought  the week’s  total loss  to 2.45%, compared to the previous week’s 1.97% positive position.

In all these, the benchmark NGX All Share Index lost  2,563.86bps closing at 101,858.37bps, compared to the week’s 104,421.23bps opening level, after  pulling back below 101,000 psychological lines to touch intra-week  low of 100,661.04bps  from highs  of  104,964.62bps. Market capitalisation also  fell  by N1.8tr to N55.74tr representing a 2.5% depreciation in  value.

The top gainers’ chart was dominated  large, medium and low cap stocks in the midst of selling sentiment and buying interest in dividend paying stocks, as  profit taking  provide good entry opportunities. Also notable was the fact that traders  and  investors reduced their position in some sectors and stocks  ahead of their earnings reports and unfolding events in the monetary and fiscal arena.

Market technicals  for the period was  negative and  weak as losers outnumbered gainers in the ratio of 68:20 on a selling  sentiment as revealed by investdata sentiment report showing  28% ‘buy’ volume and 72% sell position. Money Flow Index was looking  down at 92.55 points  from the previous week’s 100 points, an indication that funds left  the market on a weekly time frame.

Technical View

The NGX index’s action formed a double top at the end  of the week to signal reversal at supply zone to close lower at  101,858.40bps on a low  traded volume that revealed wait and see, while investors are taking   long-term position in the face of pullbacks volatility.  Also, there was position taking by dividend players  increasing their holdings, while the market continues to trade above the T-line on a  weekly and monthly time frame. In the process it sustained its uptrend in the midst of a bearish divergence between money flow and  index action at overbought state of NGX. We note also that sellers are in control, notwithstanding the fact that the market closed in green, even as the index is trading above the 200-Day Moving Average on the weekly time frame.

Bearish Sectoral Indices

Sectoral indexes closed in red, led by  NGX  Banking index after losing 6.86%  followed by Industrial goods, Insurance, Energy  and Consumer goods with  4.16%, 1.48%, 0.40%  and 0.14% respectively.

Activities  in volume and value fell as investors exchanged 2.48bn shares worth N47.86bn, compared to the previous week’s 3.89bn units valued at N95.15bn. Volume was driven by Financial Services, Conglomerates  and Oil/Gas Industry. This was boosted specifically by trading in  FBN Holdings, Transcorp, Jaiz Bank, Accesscorp and Oando

Meyer Plc  and  Juli Pharmcy  Plc  were the  best performing stocks for the week, after gaining  60.70% and  44.29% respectively, and closing at N6.91 and N1.01per share on market sentiments and forces. On the flip side,  Eterna and Abbey Mortage Bank  lost 18.78%and 18.39% respectively, at N17.95 and N2.44 per share, purely on selloffs and profit taking.

Outlook for the week

We expect mixed sentiment on  expectation of more earnings reports and profit taking  as market players target fundamentally sound stocks ahead of the January CPI and corporate action. There is also much awaited Monetary Policy Committee meeting holding later this month after six months of postponement in the face of a free fall in the value of the Naira which has made Nigerian stocks cheaper amidst the rising inflation. Also, the market awaits the steps government would take to resolve the country’s lingering FX challenges.

However, retracement to the 94,559.46bps level and below is possible on profit taking 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