Mixed Trend May Continue, As Price Corrections Create Buying Prospects
Market Update for November 4
Market players continued their profit booking on the Nigerian Exchange on Thursday, with the composite All-Share index extending its negative breadth and outing on a very low traded volume.
The bearish sentiment and weak momentum since the beginning of November were due to selloffs and profit-taking across major sectors and equities that had recently rallied in the midst of impressive corporate earnings and positive macroeconomic indices. These point to a better market that will support prices in the short to long run as players reposition their portfolios ahead of seasonality like the Santa Claus rally and others in the remaining sessions of the year 2021.
The prevailing low traded volume in the market indicates that the sentiments that took the market up are still intact, despite the ongoing profit-taking and selloffs which is part of the market dynamics that are yet to be understood by many retail investors. The light volume traded on Thursday shows that smart money is likely to markup prices, a situation that equally signals a likely reversal, but needs to be confirmed.
Technically, the NGX index’s action has entered the distribution phase as it side-trends to break down the trend line with divergence in momentum as revealed by MACD on a below-average traded volume and money flow index of 59.25points on a daily chart. The possibility of a rebound is also high after market players finish digesting the recently released earnings. We note that the numbers came largely better than expected.
However, these strong earnings, interim corporate actions, and level of liquidity in the equity space will determine the extent of this market rally when it rebounds from this pullback. Already too, all eyes are on happenings as regard global inflation and oil prices at the international markets, which is currently oscillating around $84 per barrel; on the impact of the drop in oil consumption by China, as OPEC holds on to supply, just as direction of yields in the fixed income market remains unclear.
Thursday trading started slightly on the downside and oscillated for the rest of the session on selloffs and buying interests that pushed the NGX index to an intraday low of 41,930.73 basis points, from its highs of 41,985.99bps, after which it closed below its opening level at 41,943.83bps.
Market technicals for the day were weak and mixed with volume traded lower than the previous day’s in the midst of breadth favouring the bears on selling sentiment as revealed by Investdata’s Sentiment Report showing 76% sell volume and 24% buy position. The total transaction volume index stood at 0.41 points, just as momentum behind the day’s performance remains relatively strong, Money Flow Index dropped to 59.25 points, from the previous day’s 66.47 points, indicating that funds have continued to flow out of the market since the first trading day of November.
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Index and Mkt Cap Movement
The benchmark index NGXASI, at the end of the trading, shed 31.62 basis points, closing at 41,943.83bps after opening at 41,975.45bps, representing a 0.08% drop, just as market capitalization fell by N16.51bn, closing at N21.89tr, from the opening value of N21.91tr, also representing 0.08% value loss.
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The session downturn was driven by selloffs in NGXGroup, Unilever, Guinness, PZ Cussons, Oando, UBA, and Access Bank, among others, which impacted mildly on Year-To-Date gain, as it dropped to 4.15%. Market capitalization stood at N787.49bn YTD, representing a 3.93% growth from the year’s opening value.
Sectorial performance indexes were bearish, except for the NGX Insurance index that closed higher by 1.29%, while the NGX Oil/Gas index led the decliners after losing 0.64%, followed by Consumers Goods, Banking, and Industrial goods with 0.58%, 0.51%, and 0.13% respectively.
Market breadth was negative, as losers outnumbered gainers in the ratio of 25:13, while transactions in volume and value terms were down, as market players exchanged 160.88m shares worth N1.41bn, compared to the previous day’s 292.84m units valued at N2.06bn. Volume was boosted by trades in FBNH, Lasaco, Transcorp, Japaul Gold and NGXGroup
SCOA and Linkage were the best-performing stocks after gaining 9.47% and 7.53% respectively, closing at N1.04and N0.57 per share respectively on market forces. On the flip side, Pharma Deko and Unilever lost 10% and 8.65% respectively, closing at N2.34 and N14.25 per share purely on profit-taking.
Being the last trading day of the week, we expect the mixed trend to continue as price corrections create buy opportunities into value stocks on the strength of their strong Q3 earnings power, just as candlestick formation and volume traded at the end of day trading revealed the wait and see the mood of the market as the index continues to side trend. Also, we note that institutional players are not selling yet, as they watch the pullback on a light volume. It is equally noteworthy that this pullback at this level is for the accumulation of more positions ahead of year-end seasonality. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.
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