Mixed Sentiments May Persist Amid Profit Booking, Positioning In Sound Stocks

Market Update for January 24
The nation’s stock market has gradually entered its finally stage of rallying as it recently broke out its five years major resistance level of 45,000 psychological line heading to 46,000 on buying interest in the highly capitalized and blue chip stocks that are consistent in dividend payment. This factor has, so far, supported the prevailing above-average trade volume.

The slowdown in the NGX’s index action Monday, after the January bull-run had successfully pushed the market to its 14-year high, ahead of the earnings reporting season that kicked off last week with the impressive unaudited 2021 full-year account from mortgage banks are already giving insights as to what investors should expect.

The marginal pullback recorded at the end of Monday’s trading, signaled a distribution phase of the market, due to profit taking and price corrections across the market. Since the earnings season comes with volatility at this new peak of the market, players should trade with caution and expect profit taking that would eventually strengthen the recovery and push the market higher after the correction.
Across the world, stock markets have been associated with volatility that creates opportunity for investors to buy low and sell high, meaning that the market does not remain in an up or down direction at any given time or period.

Nigeria’s equity market over the last 24 years has oscillated with different tops and strong support levels in the range of 19,000 to 20,000 which we call the base in technical analysis. The NGX made its highest peak in 2008, touching 65,824 basis points, followed by a correction that was due to effects of the global financial meltdown, which resulted in the index recording the highest loss of 45.77% that same year in the history of the Nigeria stock market.

This was extended to 2009, as a result policy changes in the financial sector by the Central Bank of Nigeria, that brought the market to its lowest level of 19,000bps, after declining by 33.47% for the year. Thereafter, it rebounded to between 30,000 and 32,000bps minor resistance levels in 2004, 2009 and 2016.

The market’s latest tops that were recently broken out are 43,141.53bps in 2014 and 45,321.82bps in 2018, just as it hit 45,957.35bps on January 21, 2022 before the slight correction due to profit taking on Monday. The NGX yearly chart below paints a picture of market movement

The market now looks to economic fundamental news, corporate earnings and outcome of the MPC meeting in the midst of oscillating oil price in the international market to trade above $84 and other factors, as more quarterly and unaudited 2021 full-year reports hit the market to shape investor sentiments in this Q1.

Technically, the NGX index action remained bullish and strong but trade metrics and candlestick at the end of trading revealed top pattern reversal that supports a correction, despite the fact that the NGX index still trades above the short Moving Averages and others.

Momentum indicators on Monday were mixed, just as the ADX read 43.75, RSI closed above 50 at 80.85 and Money Flow Index read 88.09 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as the fixed income market yields direction remains unclear, with inflation on another uptrend at 15.63%.

Meanwhile, Monday’s trading opened slightly in the downside, and was sustained throughout the session, despite oscillating on profit booking across sectors that pushed the index to an intraday low of 45,921.75bps, from its highs of 45,966.26bps. Thereafter, the index closed marginally below its opening level at 45,928.27bps.
Market technicals were weak and mixed as volume traded was slightly lower than the previous day’s in the midst of negative breadth on a selling sentiment as revealed by Investdata’s Sentiment Report showing 15% buy volume and 85% sell position. The total transaction volume index stood at 0.88 points, just as the momentum behind the day’s performance remained strong. Money Flow Index was up at 86.09points, from the previous day’s 85.87 points.  

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Index and Mkt Cap Movement 
The benchmark index at the end of Monday’s trading, slipped by 29.08 basis points, at 45,957.35bps, after opening at 45,928.27bps, representing a 0.06% drop. Market capitalization fell by N11.88bn, closing at N24.75tr, from the opening value of N24.76tr, also representing 0.05% value loss, this difference in index and market cap was due to additional listing of 78.9m ordinary shares of 50 kobo by Nigerian Breweries.

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Monday’s downturn was driven by profit taking in United Capital, FBNH, UBA, UACN, NEM Insurance, Cutix, Regency Insurance and NB, among others. This impacted mildly on Year-To-Date gain as it dropped to 7.52%. Market capitalization growth stood at N2.41tr YTD, representing a 8.99% from the opening level for the year.

Bearish Sector Indices 
Performance indexes across the sectors closed red, except for the NGX Energy index that closed 1.67 higher, while the NGX Insurance index led the decliners, shedding 1.44%, followed by Banking, Consumer and Industrial goods with 0.45%, 0.23% and 0.01% respectively.

Market breadth turned sharply negative as losers outpaced gainers in the ratio of 26:14, while activities in volume and value terms were mixed after investors exchanged 278.61m shares worth N2.89bn, compared to previous day’s 288.54m units valued at N2.41bn. Volume was boosted by trades in Chams, UBA, Courteville Business Solution, Sterling Bank and Access Bank.

NNFM and Academy were the best performing stocks for the day after gaining 9.49% and 9.90% respectively, closing at N8.65 and N0.72 per share respectively, on market sentiments and earnings expectations as March year-end accounts remained dominant in the top gainers’ table in recent days.

On the flip side, Regency Insurance and FTN Cocoa lost 9.52% and 7.69% respectively, closing at N0.38 and N0.36 per share, purely on profit taking.

Market Outlook
We expect the mixed sentiments to continue on profit booking and positioning in fundamentally sound stocks, as oil price oscillation persists, which also continues to support economic and market fundamentals.

Also, investors are targeting dividend paying stocks as they reposition portfolios ahead of 2021 Q4 and full-year audited earnings reports that may start hitting the market any moment from now. With all eyes on MPC meeting outcome, as inflation reversed up to 15.62% and other economic data. Also noteworthy is the oil price that remains above $74 projection of IMF at $84.22, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

Already, two companies made their corporate actions available to the market, announcing a growth in their dividend payout to reflect the numbers posted.  Also, inflow into equity space is looking up slowly on changing investment decision to keep this trend ahead of new year holiday.

  As market players digest economic data and happenings in fixed income market after the NGX index action retraced up to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and the new January Effect pattern likely to influence stock prices ahead of 2021 earnings reporting season.

The relatively low volume traded in the midst of uptrend and recovery moves are creating new buy opportunities on the strength of the Q3 numbers. Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet. 

It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605

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