Market Update for August 18
The bearish mood on the Nigerian Exchange intensified on Thursday as selling pressure and profit taking hit more blue chip stocks, dragging the benchmark NGX All-Share index lower. Once again, it was on a low traded volume in the midst of negative market breadth and mixed sentiments, after testing the 50% Fibonacci retracement again to extend the bear run for two consecutive sessions.
The seeming lull in the market that has been revealed by the volume patterns in recent weeks in the face of better than expected corporate earnings resulted from low liquidity in the market and the economy due to rate hike. Nevertheless, the current state of the market provides huge opportunities for position traders, as smart money is likely to hit the market any moment from now, amid ongoing interpretation of the recently released Consumer Price Index and corporate earnings by institutional investors and others are ongoing.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, which was due to the corrective move and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue chip companies relative to value. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields indicating the possibility of a higher payout as a hedge against the soaring inflation.
Despite, the pullback in money flow index on Thursday after uptrend moves in recent days, indicates accumulation is ongoing in some sectors and individual stocks, apart from selloffs in some other stocks and sectors. It is worthy of note that the current trend is creating ‘buy’ opportunities for discerning investors that understand stock market dynamics, especially as these companies’ earnings performance beat market expectations to indicate their inherent value and the cheap state of these stocks.
While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst impressive earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.
The NGX index’s action still trades below the ‘T line’ and the 50-day moving average, within a consolidated range waiting for a trigger as sector rotation and portfolio rebalancing increased amidst expectation of interim dividend paying bank results to hit the exchange. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.
To navigate this current market situation profitably using fundamental and technical analysis to run, join investdata live sessions at noon every 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 mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”
Oil prices rebounded slightly to trade at $95.88 per barrel in the international market, following seasonal demand, US inventory report in the mixed of expected increase in supply of crude, china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.
Thursday’s trading started on the downside and oscillated throughout the session on selloffs and position taking in high cap stocks, a situation that pushed the NGX’s index to an intraday low of 49,487.74bps from its highs of 49,694.34ps, before closing below its opening figure at 49,546.38bps.
Market technicals were weak and mixed, with higher volume of shares traded than the previous day in the midst of breadth favoring bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 28% buy volume and 72% sell position. The total transaction volume index stood at 0.86points, just as energy behind the day’s performance was relatively strong as Money Flow Index is looking down at 52.23pts, from the previous day’s 60.23pts, indicating that funds left the market.
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Index and Market Caps
The composite NGXASI, at end of Thursday’s trading, shed 144.79bps, closing at 49,546.38bps, after opening at 49,691.17bps, representing a 0.29% decline, just as market capitalization fell by N78.09bn, closing at N26.72tr, from the previous day’s N26.80tr, which also represented a 0.29% depreciation in value.
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Meanwhile, Thursday’s downturn was driven by selloffs and profit taking in MTNN, Cadbury, Okomu Oil, Eterna, Cutix, NEM, University Press, Transcorp and Lasaco, among others, which impacted negative on Year-To-Date gain, as it reduced to 15.99%. Market capitalization gain YTD also rose to N3.29tr YTD, representing a 19.84% rise over the opening level for the year.
Bearish Sector Indices
The sectorial performance indexes were bearish, with the NGX Banking closing 0.18% higher, while NGX Insurance led the decliners after losing 1.41%, followed by Industrial, Consumer goods and Energy with 0.51%, 0.33% and 0.10% respectively.
Market breadth remain negative as losers outnumbered gainer in the ratio of 24:12; just as activities in volume and value terms were mixed, after players exchanged 146.99m shares worth N2.65bn, with volume driven by trades in FBNH, UBA, Accesscorp, GTCO and Stanbic IBTC.
FTNCoca and Regency Insurance were the best-performing stocks, gaining 10% and 8.70% respectively, closing at N0.33 and N0.25per share respectively on market forces. On the flip side, NEM Insurance and Okomu Ol lost 9.98% and 9.96% respectively, closing at N3.97 and N195.30 per share, purely on profit taking.
Being the last trading day of the week, we expect a mixed trend on price adjustments for interim dividend, as well as bargain hunting in the midst of oscillating sentiments that had continued on portfolio reshuffling and sector rotation on bargain hunting as players interpret July inflation of 19.64% and impressive half-year results in expectation of more company’s scorecards, especially from the first-tier banks in the midst of sovereign risks, as all eyes are on interim dividends.
We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.
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