Market Update for August 23
The nation’s stock market continued its lower lows on Tuesday as corrective wave hit the benchmark NGX All-Share index and highly capitalized stocks sharply to breakdown the strong support level of 49,000 psychological line on a very high traded volume in the midst of negative market breadth and selling sentiments.
The decline phase of the market in the midst of better than expected earnings, with the interim dividends of the banks hitting the exchange amid impressive numbers to create ‘buy’ opportunities for income investors in the face of low liquidity and bargain hunting as a result of pullbacks among the highly priced stocks that had supported the uptrend before now. This correction has provided strength for rebound and higher upside potentials for those blue chip stocks with stronger earnings that had suffered losses recently in this wave.
Despite the current selling sentiments and pullbacks, the very counters that dragged the index down below the 61.8% Fibonacci retracement, suggests that more price corrections or likely reversal at 48,124.18 points depending on market forces and happenings around the economy. On this note, stock trading and investing need action plans to play today’s volatility. Have you even thought that you couldn’t trade or find opportunities to profit because the market is too volatile right now or too slow and ranging on the sideways? If we throw our hands in the air just because we don’t have an optimal trading environment, we miss out, either on opportunities to profit or learn and grow in our trading or both. In this phase of the market, one needs to change trading or investing strategies to adapt to the new market environment.
Here, try a new trading strategy or experiment. Do not be upset with the market mood. Track the new strategy to measure if you are making head ways, because the factors against the market are many now. You can equally take break to watch the market because things are changing and some of them are beyond your control.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, which was due to the corrective move and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue chip companies relative to value. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields indicating the possibility of a higher payout as a hedge against the soaring inflation.
While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst impressive earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.
The NGX index’s action remain trades below the ‘T line’ and the 50-day moving average exponential, deepen further as sector rotation and portfolio rebalancing increased amidst expectation of interim dividend paying bank results, as Zenith Bank and Stanbic IBTC announced N0.30 and N1.50 dividends respectively. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.
To navigate this current market situation profitably using fundamental and technical analysis to run, join investdata live sessions at noon every 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 mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”
Oil prices rebounded again to trade above $100 per barrel in the international market, following fear of output cut by OPEC, in the midst of seasonal demand, US inventory report hit 35 year low, china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.
Tuesday’s trading started sharply on the downside and it was sustained throughout the session on selloffs in large cap stocks, a situation that pushed the NGX’s index to an intraday low of 48,511.58bps from its highs of 49,344.67ps, before closing significantly below its opening figure at 48,554.76bps.
Market technicals were negative and mixed, with higher volume of shares traded than the previous day in the midst of breadth favoring bears on a selling pressure as revealed by Investdata’s Sentiments Report showing 7% buy volume and 93% sell position. The total transaction volume index stood at 1.18points, just as energy behind the day’s performance was relatively weak as Money Flow Index is looking down at 41.85pts, from the previous day’s 48.35pts, indicating that funds left the market.
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Index and Market Caps
At the end of Tuesday’s trading, the key performance index NGXASI shed 854.43bps, closing at 48,554.76bps, after opening at 49,346.46bps, representing a 1.60% decline, just as market capitalization fell by N426.66bn, closing at N26.19tr, from the previous day’s N26.61tr, which also represented a 1.6% depreciation value.
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Meanwhile, Tuesday’s downturn was driven by selloffs Seplat, BUA Cement, BUA Foods, Dangote Cement, PZ, Eterna, GTCO and Oando, among others, which impacted negatively on Year-To-Date gain, reducing it to 13.67%. Market capitalization gain YTD also rose to N2.84tr YTD, representing a 17.54% rise over the opening level for the year.
Bearish Sector Indices
The sectorial performance indexes were in red, except for NGX Insurance closing higher by 1.82%, while NGX Energy led the decliners after losing 4.94%, followed by Industrial, Consumer goods and Banking with 4.62%, 3.13% and 0.07% respectively.
Market breadth remains negative as losers outnumbered gainer in the ratio of 20:9; just as transactions in volume and value terms were up, after stockbrokers transacted 204.15m shares worth N3.18bn, with volume driven by trades in Mutual Benefits Assurance, Zenith Bank, FBNH, Accesscorp and UBA.
FTN Cocoa and NEM Insurance were the best-performing stocks, gaining 10% each, closing at N0.33 and N4.40per share respectively on market forces. On the flip side, BUA Foods and NNFM lost 9.92% and 9.88% respectively, closing at N54.00 and N7.75 per share, purely on selloffs and profit taking.
We expect a mixed trend to continue on bargain hunting and reaction to interim dividend from Zenih Bank and Stanbic IBTC, amidst oscillating sentiments that had continued on portfolio reshuffling and sector rotation on bargain hunting as players interpret July inflation of 19.64% and impressive half-year results in expectation of more company’s scorecards, especially from the first-tier banks in the midst of sovereign risks, as all eyes are on interim dividends.
We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.
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