Mixed Trend Likely On Profit-taking, As Investors Cash Out On Recent Price Rally

Mixed Trend Likely On Profit-taking, As Investors Cash Out On Recent Price Rally

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Post Views: 163 Market Update for May 21 Equity prices again closed higher on the Nigerian Stock Exchange (NSE) at the end of Thursday’s trading, as t...

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Market Update for May 21

Equity prices again closed higher on the Nigerian Stock Exchange (NSE) at the end of Thursday’s trading, as the bull rampage continued on positive reactions to corporate earnings and actions of highly capitalized stocks that declared dividends despite their mixed performances. 

The continued gain also followed investors positioning ahead of markdown dates of blue chip stocks, with many companies yet to release their 2019 full year and Q1 2020 financials expected to do so, since the grace period due to the coronavirus pandemic expires on May 31. More numbers are likely to hit the market in this period, especially 2019 audited accounts.

The seeming bull-run of crude oil prices at the international market has supported the positive sentiment driving the market, while institutional investors’ participation on the Nigerian bourse increases as revealed by the money flow index.

The market, on Thursday, successfully broke out the recent resistance level of 24,403.52 basis points on a high traded volume to a wave-5 extension that signals buy points, but traders may stay cautious following these back-to-back rallies. The gains recorded among the financial stocks is indicating a slowdown as Relative Strength Index reads 70.41 points, which was the point of short-term pullback on profit taking as the market entered overbought region that supports price correction. The NSE index’s action has extended its bull transition for the fourth successive trading session.

During the session, Dangote Cement and Wapic Insurance released their quarterly earnings, which were flat, while audited reports came from Eterna, Wapic Insurance and Fidson Healthcare, which announced a dividend of 15 kobo.

Also, Nigeria’s consumer price index for April was released on Thursday afternoon, showing that inflation rate for the month jumped by 12.34%, from 12.26% in March. This is Nigeria’s highest inflation level in 24 months in the midst of covid 19 heats and its effects on the economy.

Meanwhile, Thursday’s trading session opened in the red, but it rebounded by the mid-morning on buying interest across all the sectors which was sustained for the rest of the session, thereby pushing the All-Share Index to an intraday high of 24,769.40bps, from a low of 24,426.56bps, before finishing at 24,758.38bps on a high traded volume.

Market technicals for the day were positive and mixed, as volume traded was lower than the previous session’s, in the midst of breadth that favoured the bulls, and strong buying sentiments as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 97%. Total daily transaction volume index stood at 1.19, while the momentum behind the day’s performance stayed strong, as Money Flow Index read 82.40points, flat from the previous 82.33ps, indicating funds are returning to some stocks.

Index and Market Caps

At the end of Thursday’s trading, the composite NSEASI gained 306.16bps, closing at 24,758.39ps, from the opening level of 24,452.23ps, representing a 1.26% rise, while market capitalisation was up by N159.55bn, closing at N12.9tr, from its opening value of N12.74tr which represented a 1.26% appreciation in investors’ portfolios.

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Thursday’s upturn was driven by gains and buying interests in BUA Cement, 11 Plc, Guaranty Trust Bank, Zenith Bank, Unilever, Access Bank, UACN,Eterna, Fidson, UBA, FBNH  and Honeywell. This impacted positively on the NSE’s benchmark index, reducing its Year-To-Date loss to 7.76%, while market capitalization YTD decline stood at N56.58bn, representing a 0.32% drop from the year’s opening level.

Bullish Sector Indices

Performance across the sectors was bullish, with the NSE Industrial Goods index leading the advancers, after gaining 5.72%, followed by the NSE Oil/Gas and Banking indices that chalkd 1.44% and 1.41% respectively, while the NSE Insurance and Consumer Goods closed 0.97% and 0.38% better respectively.

Market breadth, remained positive as advancers outnumbered decliners in the ratio of 29:9, while transactions in volume and value terms declined by 19.70% and 31.42% respectively, as investors exchanged 350.77m shares worth N3.71bn; from the previous day’s 436.84m units valued at N5.41bn. Volume was driven by trades in Zenith Bank, Ekocorp, FBNH, Guaranty Trust Bank and Lafarge Africa.

The best-performing stocks were Sunu Assurance and Redstar Express, which gained 10% and 9.97%, closing at N0.22 and N3.75 per share respectively on market forces and full-year earnings expectations. On the flip side, Arbico and Oando lost 9.91% and 5.76% respectively, closing at N2.09 and N2.62per share respectively, on selloffs and profit taking.

 Market Outlook

Being the last trading before the public holiday declared for Monday and Tuesday to mark the Id-el-Fitr, we expect mixed trend on profit-taking and positioning as investors cash out gains following the week-to-date rally, as investors interpret corporate earnings and dividend payouts. The MFI is showing improved institutional investors activity in the midst of the bullish oil prices and rising new cases of coronavirus as number of infected people cross 7000 and deaths above 200.

However, the rising new cases of the coronavirus pandemic spread and its negative impact on the economy remains of grave concern.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation going forward.

This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

 Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

amberose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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