Mixed Sentiments, Profit Taking May Open Entry Opportunities Ahead Of H1 Earnings Inflow

Market Update for July 9

Profit booking on the Nigerian Exchange continued on a mixed session Tuesday, as the benchmark NGX All-Share index closed lower again on a low traded volume, thereby extending the bearish transition for the fourth successive session in the face of positive market breadth and selling sentiment. Traders cashed out profit from banking and insurance stocks in portfolios rebalancing and bargain hunting ahead of the half-year earnings reporting season likely to kick off any moment from this week.

The market finally broke down the T-line, confirming the weak momentum that creates entry opportunities which lead to strength and reversal of trend, with the NGX  forming a bottom pattern that also signals an uptrend in the making which however needs confirmation as the market enters yet another demand zone in expectation of  corporate and economic numbers. When that happens, it could give way for a new uptrend, depending on the state of the corporate earnings and macroeconomic indices as all eyes are on these numbers to drive flow of funds in the financial market.

The market is becoming interesting for discerning investors and smart traders like any good drama, thereby keeping us on the edge, just as the cautious trading that opened the week could suggest a pause on the NGX. However, players know that the market often takes a moment to catch its breath before resuming an upward climb, especially if the corporate numbers beat expectation in the midst of pullbacks and prevailing low valuation.

Meanwhile, all eyes are on such early filers like Infinity Trust Mortgage Bank, United Capital, and Africa Prudential, among others. As outlook for the rest of the year remains mixed on the back of the ongoing primary market activities for companies, especially those engaged in banking services to recapitalize, while the Central Bank of Nigeria (CBN) monetary policy moves to checkmate the spiraling inflation militating against the economy amid the high interest and exchange rates challenges.

The NGX index’s action is now below 100,000 mark and the T-line to form a resistance for the market, while it remains above the two moving averages of 50-EMA and 50-SMA in the midst of changing market fundamentals and technical to indicate slowing momentum. As economic reforms of the government through the fiscal and monetary policies are yet to put the nation’s economy on the path of recovery, due to continued mismatch of policies and implementation style in the face of oscillating oil production output and Naira depreciation, notwithstanding that oil is selling above $84 per barrel in the international market.

There were inflow of closed period  and board meeting notification from Champion Breweries,  Cadbury and Ronchess Global Resources, apart from more Annual General Meeting notifications. Similarly, some other companies presented resolutions from their meetings, with the latest coming from Linkage Assurance, MRS Oil and Chams. Airtel Africa continued updating the market of its ongoing share buyback, just as The Initiates Plc informed the market of its insider dealing.

In the midst of all these, it is safe for investors to target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the NGX is weak with a bottom pattern reversal as revealed by the candlestick formation and weak momentum indicators. As ADX inched down at 21.18, while RSI and Money Flow Index were down to read 53.49 and 29.38 points against the previous session 57.42 and 41.37points respectively. Market players should watch this current trend and trade with caution as reversal is underway in the face of funds leaving the market on profit taking. Also, trading volume pattern continued to oscillates, suggesting selloffs and buying interest in some sectors in the midst of wait and see attitude ahead of Q2 corporate 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 price pulled back on  Tuesday to continue its oscillation, trading at $84.60 per barrel in the midst of another crude draw reports that support  positive outlook on demand ahead CPI reports that will impact US rate cuts or not. As mixed economic data from China and trade war from the west remain a concern for market players across the globe. There are threats of increasing geopolitical tension across many economies even with the expect impact of rate cuts on the economic activities in the face of sticky inflation. This trend may likely continue in 2024, while the up and down movement continues to drive volatility, even as ceases fire discussion is ongoing to resolve the Middle East conflict, even as the raging war between Ukraine and Russia continues to influence global oil supply and demand.

Tuesday’s trading started on the downside, and was sustained for the rest of the session, on profit taking and selloffs in financial stocks. This was despite the buying interest across  other  major sectors, a situation that pushed the NGX’s index to an intra-day low of 99,781.60bps from its highs of 100,007.00bps, before closing  below its opening level at 99,809.00bps.

Market technicals for the session were weak and mixed with lower volume when compared to the previous session in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 11% buy position and 89% sell volume. The total transaction volume index stood at 0.55 points, just as energy behind the day’s performance was weak as Money Flow Index  fell to read 29.38pts, from the previous day’s 41.37pts, indicating that funds left  the market.

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Index and Market Caps

At the end of Tuesday’s trading, the NGX All-Share Index shed 200.84 basis points, closing at 99,805.95bps after opening at 100,006.79bps, representing a 0.20% decline. Market capitalization fell by N113bn, closing at N56.46tr from the previous day’s N56.57tr, which also represented a 0.20% depreciation in value.

Attention: If you have not signed up for INVESTDATA’s buy and sell signal setup, don’t delay, because the number of stocks entering their oversold range has increased as market correction and pullbacks call for caution and positive chart patterns to be on our watchlist. These stocks have potentials to retrace, considering their earnings prospects and the oscillating moves in an upmarket and weak economy.

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Tuesday’s downturn was driven by profit taking and selloffs in the shares of GTCO, UBA, ETI, Aiico, Veritas Kapital, UACN, Africa Prudential and Ikeja Hotel among others.  The day’s loss impacted negatively on Year-To-Date growth as  it slipped to 33.45%, while Market capitalization YTD gain fell to N11.52tr, representing 38.02% above its opening level for the year.

Bullish Sector Indices

The sectoral performance indexes were up, save for the NGX Banking index that closed lower by 1.90%, while NGX Energy index led the advancers after gaining 0.39%, followed by Consumer goods,  Insurance and Industrial goods  with 0.28%, 0.12 and 0.04% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 28:24, while transactions in volume and value were mixed after players exchanged 422.69 million shares worth N54bn. Volume was driven by trades in Transpower, Veritas Kapital, Aiico Insurance, GTCO and Oando.

Champion Breweries  and Cadbury  were the best performing stocks, gaining 9.97% and 9.94% respectively, closing at N3.31 and N18.25 per share respectively on  market forces and sentiment. On the flip side, Africa Prudential and UACN lost 10% and 7.28% respectively, closing at N8.10 and N14.00 per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed sentiments and profit taking that will create new entry opportunities for discerning market players ahead of earnings reporting season kicking off any moment from now, as portfolios repositioning continue, while 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