Market Update for October 2 

The first trading session of October, the quarterly earnings reporting month closed negative on the Nigerian Exchange, on the back of continued portfolio rebalancing and sector rotation in reaction to the latest rate hike by the Central Bank of Nigeria. The circular flow of funds is ongoing in search of higher returns in fixed income instruments and relatively low risk, while calculative moves are being taken by market players to position in sectors and industries that are net gainers from the monetary policy decision. Investors also continue to keep an eye on corporate numbers in the midst of the slowing economy due to the high interest rate and policy mismatch evident in the government’s economic reform.

The benchmark NGX All-Share index closed lower on Wednesday, wiping out the previous session’s gain on low traded volume and negative market internals to forming a bottoming chart pattern that needs confirmation in the rest of trading session this week.

Market pullbacks and distribution phases are different dynamics of stock markets technically that require effective strategies to navigate and follow trends. The breadth contraction as many stocks are selling below their 52 weeks high at the beginning of the last quarter of the year creates opportunity to buy into undervalued and defensive stocks that will support rebound as all eyes are on Q3 numbers and other macroeconomic data. Historically and in technical analysis, trends or patterns repeat itself, the new quarter comes with seasonality’s and sentiment that makes its very important to market players across the globe. Especially, as we are expecting a minor retracement from strong support of 97,800.32 after forming a bottoming tail and range expansion bar. This created the perfect setup for high probability swing trade to catch on.

More companies on the NGX are notifying the investing public of closed periods and board meeting dates to approval their scorecards in the new month of October. The pullbacks by some companies due to profit taking and portfolio reshuffling creates another opportunity for new entrants who understand the big picture and market dynamics at this season.

The NGX index’s action signaled weakness after closing below the T-line and trading above the two moving averages of 50-EMA and 50-SMA that indicates correction or pullbacks underway in the midst of changing market fundamentals and technicals. We note that the economic reforms of the government, measured by the outpouring of fiscal and monetary policies are yet to put the nation’s economy on the path of recovery, despite the seeming slowdown inflation and mixed macroeconomic data. There are also issues with the implementation style amid the oscillating oil production output even as the Naira continues to depreciate at a time that oil is trading below $75 per barrel at the international market.

Technically, the NGX is pulling back, expecting another trigger to reverse up and breakout the recent resistance levels, as the state of the expected Q3 corporate numbers will determine the next direction as these scorecards start hitting the market as revealed by the candlestick formation and momentum indicators. As ADX is looking down at 21.12, while RSI and Money Flow Index fell to read 56.37 and 62.15 points against the previous session 61.20 and 67.96 points respectively. Market players should watch this current trend and trade wisely in the face of funds leaving the market on selling sentiment in some sectors and position taking in others. Also, trading volume pattern continued to oscillates, suggesting buying interest and selloffs in the market amidst players looking forward to corporate and economic numbers.

To navigate the rest of this quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday trading day “and 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 range market. Despite the oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil prices at the midweek were up to continue its oscillation, as it trade at $74.80 per barrel in the midst of escalating middle conflict fear affecting supply and  rising US inventories. As OPEC assure of supply even when Iranian supply shock arises. The rising geopolitical uncertainties across many economies remains a threat to the global economy. This trend may likely continue for the rest of 2024, while the up and down movement continues to drive volatility, even as the raging war between Ukraine and Russia continues to influence global oil supply and demand.

Meanwhile, midweek trading opened in the downside, which was sustained throughout the session on selloffs in highly priced stocks and others, a situation that pushed the NGX’s index to an intra-day low of 98,229.66basis points from its highs of 98,590.80bps, before closing below its opening level at 98,232.39bps.

Market technicals for the session were negative and mixed with lower volume when compared to the previous session in the midst of breadth that favour the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 1% buy position and 99% sell volume. The total transaction volume index stood at 0.83 points, just as impetus behind the day’s performance was  relatively strong as Money Flow Index was fell to read  62.15pts, from the previous day’s 67.96pts, indicating that funds left the market.

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Index and Market Caps

The composite NGX All-Share Index lost 326.40bps on Wednesday, closing at 98,232.39bps after opening at 98,523.56bps, representing a 0.33% decline. Market capitalization fell by N187.56bn, closing at N56.45tr from the previous day’s N56.81tr, representing a 0.33% depreciation in value.

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The  downturn was driven by profit taking and selloffs  in the shares of  MTNN, Oando, FBNH, UBA, Ellah Lakes and Caverton among others, which impacted negatively on Year-To-Date gain as it slide to 31.37%, while Market capitalization inched down to N11.64tr, representing 38.21% above its opening level for the year.

Mixed Sector Indices

Sectoral performance indexes were mixed with the NGX Banking and Energy  index closing 2.01% and 0.13% lower respectively, while the NGX Consumer goods index led advancers after gaining  1.07%, followed by Insurance and Industrial goods with 0.97% and 0.02% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 31:24, while transactions in volume and value were mixed after investors exchanged 425.76m shares worth N8.45bn. Volume was driven by trades in UBA, Zenith Bank, Veritas Kapital, Ellah Lakes and Regency Insurance.

International Breweries and Meyer were the best performing stocks, gaining 9.98% and 9.84% respectively, closing at N4.41 and N8.52 per share respectively on the back of market forces and sentiments respectively. On the flip side, Ellah Lakes and Caverton lost 9.93% and 9.92% respectively, closing at N3.99 and N2.18per share, purely on profit taking and selloffs.

Market Outlook

We expect mixed sentiment to continue on profit taking and portfolio rebalancing ahead of Q3 earnings reporting session. Also, sector rotation continues in the market, with investors taking advantage of pullbacks to buy into value.

This is amid the volatility and pullbacks that add more strength to upside potential. Consequently, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

08028164085