Mixed Sentiments Still, But Reversal Imminent On Reactions To Surprising Earnings

Market Update for August 1

The month of August started on a negative note on the Nigerian Exchange extending the decline and losses for eight consecutive trading session that brought changes in market fundamentals and technical in July. Highly priced stocks and blue chip companies witnessed selloffs, pulling the benchmark NGX All-Share index below the 98,000 mark after testing a high of 100,612.85 basis points in the previous month. These changes experienced in July at the peak of half-year earnings reporting season is a signal of what market players should expect in the new month. It is noteworthy that numbers released so far have been mixed, while the low cap stocks earnings beat market expectations. This is especially true of services providers like banks, insurance and others in the face of low valuation and pullbacks in the market.

Investdata historical data reveals that the month of August is one of the worst on the exchange, recording a decline in all of 18 years in 27 years, and green in just eight. With the pullbacks seen so far ahead of those of the interim dividend paying banks, and on the strength of the earnings reports made available so far, the NGX is likely to oscillate on short-term trading through September amid position taking and portfolio rebalancing in the last quarter of the year. Meanwhile, macroeconomic and corporate numbers continue to guide market players on sector rotation.

Purchasing Managers Index for the month of July again revealed the negative impacts of monetary and fiscal policies on the economy, reading 49.90 points which is below the 50 points benchmark, thereby confirming a contraction in business activities and at the same time mirroring the Q1 GDP that also contracted.

The NGX All-Share index closed lower in the midst of slight positive market breadth and low traded volume, as market players continue to digest emerging company numbers in the face of a weak momentum and the decline phase of the NGX. More companies released their quarterly and audited accounts to the market during the session. They were: Northern Nigerian Flour Mills, Neimeth Pharm and Tantalizer Plc.

Meanwhile, pullbacks and correction continued in some major sectors of the market, a situation that kept the index’s action below the T-Line, revealing the weak momentum and downtrend. The market continues to trade within the value area, creating entry opportunities for discerning investors and smart traders, even as trading volume pattern and support level signals entry into the buy zone at the peak of the quarterly earnings season and dividend announcement. This downtrend could reverse on the strength of these corporate numbers despite the mixed performance, as many value and growth stocks are undervalued.

The NGX index’s action remains below the T-line, while the two moving averages of 50-EMA and 50-SMA are indicating weakness 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, due to the continued mismatch of these and previous ones. There are also issues with the implementation style in the face of oscillating oil production output even as the Naira continues to depreciate at a time that oil is selling below $80 per barrel at the international market.

Meanwhile, during the session, FBNH, Academy Press and Cutix notified the NGX of their proposed AGM and resolutions from the meeting by Ikeja Hotel, while Airtel Africa continues to update the market of its ongoing share buyback programme. Also, Ucap and Cutix informed the market of insider dealings in its shares. 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 and on the downtrend with selling sentiment and weak momentum as revealed by the candlestick formation and momentum indicators. The ADX is looking up at 29.62, while RSI and Money Flow Index were down to read 24.39 and 37.19 points against the previous session 27.12 and 42.77 points respectively. Market players should watch this current trend and trade wisely in the face of funds leaving the market slowly, despite position taking in some sectors. Also, trading volume pattern continued to oscillates, suggesting buying interest and selloffs in some sectors in the midst of players interpreting half year 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 slide on Thursday to continue its oscillation, as it trades at $80.68 per barrel in the midst of growing fears of war in the middle east and weak demand from China the largest imported of oil, despite the hope of rate cuts in the largest economic. As increasing geopolitical tension across many economies threaten economic activities in the face of cooling inflation. This trend may likely continue for the rest of 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.

Thursday’s trading started on the downside and oscillated throughout the session on profit taking in insurance and consumer goods stocks, while buying interest in others. This situation pushed the NGX’s index to an intra-day low of 97,353.35bps from its highs of 97,838.68bps, before closing below its opening level at 97,359.76bps.

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 1% buy position and 99% sell volume. The total transaction volume index stood at 1.01 points, just as impetus behind the day’s performance was relatively weak as Money Flow Index was down to read 37.19pts, from the previous day’s 42.77pts, indicating that funds left the market.

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Index and Market Caps

The NGX All-Share Index at the close of Thursday’s trading lost 414.46 basis points, closing at 97,359.76bps after opening at 97,774.22bps, representing a 0.42% decline. Market capitalization fell by N235bn, closing at N55.28tr from the previous day’s N55.51tr, which also represented a 0.42% depreciation in value.

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The downturn was driven by profit taking and selloffs in MTNN, with investors reacting apparently to the huge half-year loss, Dangote Sugar, Nascon, Oando, Guinness and Linkage Assurance among others. This impacted negatively on Year-To-Date growth slide to 30.21%. Market capitalization YTD gain grew to N10.87tr, representing 35.34% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, as the NGX Banking and Industrial goods closed higher by 0.40% and 001% respectively, while NGX Insurance index led the decliners after losing 1.7%, followed by Insurance and Energy with 0.20% and 0.05% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 22:19, while activities in volume and value were down after investors exchanged 565.1mm shares worth N8.5bn. Volume was driven by trades in Fidelity Bank, UBA, Zenith Bank, Oando and Accesscorp.

Ucap and Africa Prudential were the best performing stocks, gaining 9.95% and 9.94% respectively, closing at N11.05 and N9.40 per share respectively on the back of low price action and sentiment respectively. On the flip side, Mecure and Wapic lost 9.94% and 8.24% respectively, closing at N5.13 and N13.60 per share, purely on profit taking and selloffs.

Market Outlook

We expect mixed sentiments and reversal on reactions to the surprising earnings reports and sector rotation amidst low valuation. Portfolios repositioning is however continuing, as investors take 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