Mixed Trend Amid Bargain Hunting, January Effects, Ahead On Profit Taking, Earnings Reports

Market Update for January 4

Equity prices on the Nigerian Exchange closed higher Wednesday in the midst of continued volatility and strong momentum, despite the seeming profit taking activities in some high cap stocks and others at the end of midweek trading. This extended the back-to-back gain for 13 consecutive sessions on positive sentiments and market breadth.

The candlestick formation at the end of trading on Wednesday signaled price correction or pullback, depending on market forces as trading opens Thursday, just as more companies continue to notify the exchange of its closed period and board meetings. Investors are also keeping an eye on macroeconomic reports expected this month, particularly the first meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) for the year, as well as unaudited Q4 financials.

We note that the just released Purchasing Manager index for December shows an 30 basis points expansion to 54.60 point from 54.30 points in November, this was due to strong demand that supported the fastest rise in new orders in eight months being the festive period and last quarter of the year. This is likely to support some corporate earnings for Q4, while all eyes are on the earnings reporting season that kicks offs any moment from next week. This is likely to drive the ongoing volatility in the face of the usual January effect that had been positive in the previous year and month.

Position taking across the major sectors of the market on continued to support the recovery as revealed in the short, medium and long term trend, therefore signaling the continuation of this recovery in the month of January due to the expected full-year earnings and corporate actions that would support price. This is however, notwithstanding uncertainties associated with the coming 2023 general elections, and a possible post-election rally, all things being equal.

The buying pressure supported the NGX All-Share index at midweek, as it traded above the 200-Day Moving Average on the daily and weekly time frame in the midst of volatile but positive sentiments. This was driven by the continued bargain hunting activities of positioning in value stocks at their current prices ahead of the NGX’s historical peak of earnings reporting season that comes with more liquidity, buying interest, earnings surprises and disappointments. Also, rates and yields in the fixed income market have been on the decline across all tenor as seen in the last TB primary market auction offer for 2022.

Technically, the NGX index action extended its markup phase in the face of a topping chart and bullish V-shape pattern that supports reversal or continuation of trend on a daily and weekly time frame, as the convergence between the index action and MACD at the end of Tuesday trading on a dally chart supports continuation of trend, despite profit taking that hit some industrial stocks.  let us keep our gaze on market forces and money flow.

Momentum indicators appear to remain stronger, as revealed by the ADX reading 63.41, just as, RSI and Money Flow Index are looking up to read 90.55 and 100 points against the previous session 90.39 and 100 points respectively. Volume trading pattern suggests the gradual return of many players who had been seating on the fence before now, including institutional investors holding cash to confirm the primary’s market direction, especially given the anticipated financial market and economic reset in 2023, that comes with huge opportunities to create wealth for smart investors and traders.

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Oil price oscillation continued, as it pullback to trade below $80 per barrel on increasing fear of demand, global economy concern in the midst of rising cases of Covid-19 in China and its reopening. Just as the geopolitical tension and fear of recession as a result of high interest rate and inflation across the globe. Also, supply tightened due to the Russia-Ukraine war that has lingered so far. The up and down movement of oil price also continues to drive volatility.

Midweek trading started in the upside and oscillated for the rest of the session due to profit taking in some highly priced stocks and position taking in medium and low cap companies, a situation that pushed the NGX’s index to an intraday high of 51,668.24 basis points from its lows of 51,198.49bps before closing slightly above its opening level at 51,657.56bps.

Market technicals were positive and strong, with higher volume of trade compared to the previous session in the midst of positive breadth and buying sentiment as revealed by Investdata’s Sentiments Report showing 98% buy position and 2% sell volume. The total transaction volume index stood at 1.31 points, just as momentum behind the day’s performance was strong as Money Flow Index looked up at 100pts, from the previous day’s 100pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGX All-Share index, at the end of the day’s trading inched up by  43.11 basis points, closing at 51,657.56bps after opening at 51,595.66bps, representing a 0.12%, just as market capitalization rose by N33.71bn closing at N28.14tr from the previous day’s N28.10tr, which also represented a 0.12% value gain.

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The day’s upturn was driven by demand for the shares of NB, Flour Mills, Ecobank Transnational Incorporated, Fidson, Nahco, Aiico, Mansard, FCMB and Fidelity Bank, among others, which impacted positively on Year-To-Date gain of 0.79%. Market capitalization YTD gain stood at N221.4bn, representing 0.79% above its opening level for the year.

Bullish Sector Indices

Sectorial performance indexes for the session closed green, except for the NGX Industrial goods that closed in red with 0.77% while NGX Consumer goods led the advancers after gaining 2.09%, followed by Insurance and Banking with 0.93% and 0.52% respectively. Just as NGX Energy closed flat.

Market breadth was positive as gainers outnumbered losers in the ratio of 20:12; whereas activities in volume and value were mixed, after stockbrokers traded 265.73m shares worth N13.53bn. Volume was driven by trades in BUA Cement, Transcorp, Accesscorp, GTCO and UBA.

Nacho and NB were the best performing stocks, after gaining 10% each, closing at N7.70 and N45.10 per share respectively on market forces and earnings expectation.  On the flip side, Champion Breweries and Unity Bank lost 10% and 6.78% respectively, closing at N4.95 and N0.55per share, purely on profit taking.

Market Outlook

We expect positive sentiment and mixed trend on profit taking as  bargain hunting  ahead of January effects and volatility in the face of  Q4 earnings reports and election uncertainty, as pullback at this point 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.

Crucial Announcement

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CRO|Investdata Consulting Ltd




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