Mixed Sentiments, Profit Taking  Yet, As Investors React To Earnings Inflow, Bet On MPC Outcome

Market Update for February    5

Profit taking and selling sentiments resurfaced once more on the Nigerian Exchange Monday, starting the first full trading week of February, while cutting back the winning streaks of the market with the composite All-Share index closing lower. In the process, halting two consecutive sessions of bull-run on an above average traded volume and negative market breadth.

The seeming slowdown is normal and expected, after the market had remained on an uptrend all this while, especially after the bull ascendency in January amidst the inflow of unaudited earnings reports and high volatility, just as there is the high possibility that traders are cashing out their capital gains. However, this reversal pattern or signal will be confirmed after Tuesday’s trading, depending on market forces and sentiments. Also, activities in the fixed income market and rising inflation ahead of this month’s policy meeting of the Central Bank of Nigeria will further determine market direction.

The NGX pullback however creates new buy opportunities for smart traders and discerning investors, since the quarterly and unaudited full-year 2023 financials are giving insights into what market players should expect from these companies between now and March 31, 2024. Meanwhile, companies that have opted not to release unaudited Q4 2023 are expected to file their audited full-year results with corporate action by these recommending dividend for their shareholders.

Consequently, all eyes are on early filers like United Capital, Africa Prudential, MTNN, Nigerian Breweries, Zenith Bank, GTCO, UBA and others, especially now that some banks have approved their audited accounts and sent them to the CBN for final approval before presenting same to the NGX. The market has so far entered the peak of earnings reporting season where sentiments and earnings fundamentals drive momentum and liquidity level and players react to the numbers being provided. These results will expectedly be impressive or disappointing, depending on where the pendulum swings. This will drive oscillation and volatility as dividend announcement and corporate action kick off this month.

The market continues to witnes selloffs in some sectors and stocks in the midst of expectation of more corporate earnings inflow, as sector rotation persists in the face of pullbacks.  Market players should watch out for the value areas of resistances and supports levels ahead of company results hitting the market any moment from now. The NGX has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism that was fueled by the belief that the  impressive performance from the financial sector. There is also the growth prospect of the economy in the face of rising macroeconomic headwinds that will support rebound and revaluation of assets in 2024.

As the stock market is a leading indicator of the economy, all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action remains above the T-line on daily basis in the midst of high volatility and positive momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility.

The candlestick formation and chart pattern on Monday revealed a reversal of trend that may likely continue or reverse, depending on market forces and sentiments as trading opens this morning. Therefore, market players should 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 index’s action is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

On the strength behind the trend or the session, momentum indicators were mixed, at this overbought state of the market, as ADX slowdown to read 82.46, while RSI and Money Flow Index are looking down at 80.40 and 84.82 points against the previous session 83.47 and 84.92 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are leaving the market. The trading volume pattern suggests hold and watch disposition of market players, as investors accumulate more positions in some stocks as others investment windows returns remain below inflation and negative.  Also, the anticipated financial market and economic reset in 2024, comes with huge opportunities to create wealth for smart investors and traders.

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Oil price inched up slightly on Monday to continue its oscillation, trading at $78.18 per barrel in the midst of central banks of the world retained rates unchanged to watch macroeconomic data, as partial ceasefire in the Middle East conflict lingers, while Ukraine and Russia  war persists.  The rising geopolitical tension across the globe is also a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Meanwhile, Monday’s trading started in the green before pulling back in the afternoon and was sustained for the rest of the session on profit taking in banking stocks and others. This pushed the NGX’s index to an intraday low of 103,648.30 basis points, from its highs of 104,964.62bps, before closing below its opening figure at 103,659.80bps.

Market technicals were negative and mixed, as transaction volume was lower compared to the previous session in the midst of breadth favoring 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 1.04 points, just as energy behind the day’s performance was strong as Money Flow Index looked flat  at 84.82pts, from the previous day’s  84.92pts, indicating that funds left the market.

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Index and Market Caps

At the end of Monday’s trading the benchmark NGXASI shed 761.42bps, closing at 103,659.81 after opening at 104,421.23bps, representing a 0.73% decline, just as market capitalization fell by N436.97bn, closing at N56.72tr from the previous day’s N57.16tr, which also represented a 0.73% value loss.

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Monday’s downturn was driven by profit taking and selloffs in the shares of MTNN, Accesscorp, Transcorp, PZ, UBA, Zenith Bank, Nascon and Oando, among others, which impacted negatively on Year-To-Date gain as it reduce to 38.63%. Market capitalization YTD gain stood at N15.76tr, representing 38.64% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were down, save for NGX Insurance index that closed 2.67% higher, while NGX Banking index led the decliners  after recording 2.3%, followed by Consumer goods with 0.03%. Just as NGX Industrial goods and Energy finished flat.

Market breadth turned negative as losers outnumbered gainers in the ratio of 28:26, as transactions in volume and value were down, after players exchanged 841.55m shares worth N19.33bn. Volume was driven by trades in, FBNH, Transcorp, Oando, UBA and NB.

Cadbury and Cornerstone Insurance were the best performing stocks, gaining 10% each, closing at N22.00 and N2.09 per share respectively on earnings expectation and market sentiments.  On the flip side, Abbey Building and Livestock Feeds lost 9.70% and 9.66% respectively, closing at N2.70 and N1.87per share, purely on selloffs and profit taking

Market Outlook

We expect mixed sentiments and profit taking  to continue as players  react to earnings reports  in the face of  volatility and upcoming policy meeting, while pullback at this point will add more strength to upside potential. As such, 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




Tel: 08028164085, 08179547605