Mixed Trading Patterns Ahead, Amid Bargain Hunting In Dividend Stocks, Profit-Taking

Market Update for the Week Ended December 3 and Outlook for Dec 6-10

The nation’s equity market during the just ended week witnessed a negative outing that reversed the previous week’s gain on a selling sentiment, amid low traded volume that ushered in the decline phase of the market. Consequently, the NGX witnessed a breakdown after weeks and sessions of sideways movements attributed to the selloffs in MTNN and other blue chips stocks. There was also the impact of the fear of the omicron variant and fourth wave of the Coronavirus pandemic that further depressed the global and local markets, unfortunately, while the mature markets have rebounded, the local bourse continues to travel further south, as it closed the week lower.

The economy has its own four cycles which are determined by such indicators as interest rates, inflation, and national output/productivity that enable investors to identify which sectors have done, or will do well. Understanding market structure, using technical analysis will tell us the phase of the market at any time and enable us to apply the right strategies to win big.

However, the way to improve your profit-taking strategy is to sell when many traders are buying into positions. This is a smart way of taking profits because large moves are often followed by digestion days, where the market consolidates or pulls back for a breather. Knowing where to take profit is a highly debated issue or topic among traders. There have been pre-determined rules for selling or profit-taking. So know when to scale down your trading size, have a clear trade expectation and always have an exit price in mind before jumping into any position.

We envisage a mixed trading pattern due to bargain hunting activities in dividend-paying stocks amid intermittent profit-taking activities. That notwithstanding, we advise market players to position in fundamentally sound stocks with positive technicals and sentiment as market fundamental and liquidity keep looking up in the face of oil price oscillation at the international market, while the nation’s external reserves and the local currency looked up again.

Technically, the NGX index’s action on a weekly time frame reveals negative sentiments, as ADX remained above 20 points at 37.58, just as the money flow index was down at 66.36 points, revealing a contraction in money flow into the equity space. These are indications that confirm the daily move and volatility, as the NGX index has broken down the strong support level of 42,964 basis points which signaled correction on the daily chart, but remain strong and bullish on a weekly time frame until a breakdown of 41,976.30 points of this level to confirm decline. So, we have to wait to see what happens in the new week as analysts expect historical trends and seasonality’s to play out.

The low traded volume, during the week, is an indication that institutional investors are not selling and the volume that took the market up is still very intact. The light volume on the profit-taking activities shows that retail investors like you and I are the ones booking profits. As unclear yield direction in the fixed income market remain a plus for equity market as inflation remain high in the midst of low yield and negative real returns

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Movement Of NGXASI

It was a bear-dominated trading week as selloffs and profit-taking ran through the sessions, just as the NGX index recorded a total loss of 2.63%, wiping out the previous week’s 0.25% gain. This performance was driven by sell pressure in bellwether stocks.

Consequently, the key performance index shed 1,140.38 basis points, closing the week at 42,167.91bps, after touching an intra-week low of 42.137.25bps from its highs of 43,319.46bps, as the week’s opening figure was 43,308.29bps on negative sentiments and profit-taking in low, medium, and high priced stocks. Market capitalization, during the period, fell by N600bn, closing at N22.003tr, compared to the previous week’s N22.598tr, which also represented a 2.63% value loss.

The week’s top gainers’ table was dominated by low and medium-priced stocks which had become the toast of investors, despite the negative and selling sentiments that were due to positive sentiment for NEM Insurance, Meyer, Linkage Assurance, Prestige Assurance, Academy Press, AIICO, NGX Group and ABC Transport, in the midst of the continued portfolio repositioning on the strength of Q3 earnings reports and positive economic data. It is noteworthy that the NGX Index and price actions revealed the presence of sellers in the market, a situation that reflects on some sectorial indexes.

Market breadth was negative for the week in the midst of low traded volume and the expected year-end seasonality and historical trend patterns that are likely to support recovery in the short to long run as investors increase their positions on a pullback. Decliners outnumbered advancers in the ratio of 49:18, on a negative sentiment as revealed by investors’ sentiment report showing a 97% sell volume and 3% buy position. Money Flow Index rose to 66.36bps from the previous week’s 70.75 points, an indication that funds exited the market.

NSEASI WEEKLY CHART MOVEMENT

The NGX index’s action, on a weekly chart, maintained a bullish pattern despite pulling back on selloffs during the week, reversal is imminent as revealed by the daily chart hammer candlestick formation and the January resistance level becoming a strong support level on a low volume traded. The candlestick pattern at the end of last week was bearish to indicate that the market is correcting. Also with all eyes on fixed income market yields and oil prices that should further support market fundamentals to attract liquidity to the equity space. This pullback at this point is creating new buying opportunities.

Bearish Sectoral Indices

The performance indexes across the sector were down, except for the NGX Insurance that closed higher 2.97%, while the NGX Oil/Gas led the decliners after losing 4.55%, followed by Banking, Consumer, and Industrial Goods with 2.29%, 0.59%, and 0.08% respectively. Activities in volume and value terms were down, as players exchanged 1.28 bn shares worth N17.34bn, compared to the previous week’s 3.44bn units valued at N30.92bn. Volume was driven by Financial Services, consumer goods, and Conglomerates,  particularly FBN Holdings, GTCO, Access Bank, and Transcorp.

The best-performing stocks for the week were NEM Insurance and Meyerwhich gained 18.42% and 10% respectively, closing at N2.25 and N0.22 per share respectively on market forces. On the flip side, UPDC and Consolidated Hallmark Insurance lost 24.43% and 20% respectively, at N0.99 and N0.44per share, purely market forces and profit-taking.

Outlook for the week

We expect a mixed sentiment, as investors and bargain hunters continue to take advantage of price pullbacks in fundamentally sound stocks for repositioning, as oil price recovery influences the nation’s reserve and currency positively. It is also noteworthy that fund and portfolio managers continue to take a position on the strength of Q3 numbers ahead of the current financial year-end. For now, many stocks remain within their buy ranges to attract funds into the equity space. Also, investors will continue tracking yields movement in the fixed income market. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. Last week’s low volume suggests that institutional investors are not selling. It is noteworthy that oil prices rebounded to trade above $84 in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

We appreciate all of last Saturday’s Invest 2022 Summit for Traders and Investor Summit. It is the hope of the Investdata team that the event has retooled you for profitable trading in the year 2022 and beyond as we expect. We also appreciate our facilitators and all those who worked at the backend to make it the huge success that it turned out.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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