Mixed Trend On Bargain Hunting, As Investors Await Results Of 1st Banks, July Inflation Data

Market Update for August 7

Trading resumed on the Nigerian stock market for the week on a positive note, extending the seesaw movement in an uptrend with low traded volume as the chart formed a top pattern signaled correction or continuation of trend that requires confirmation as the market opens on Tuesday. The benchmark NGX All-Share index closed higher, following price appreciations of highly priced stocks like MTNN and BUA Foods, among others, reversing Friday’s loss in the midst of a slightly positive market breadth and buying interest in banking stocks. Portfolio rebalancing and sector rotation continued on the strength of corporate earnings and dividend expectations from interim dividend paying companies.
Assets revaluation continued as investors await more pronouncements from the government and economic manager’s portfolios as the Senate concluded the confirmation of minsters that will constitute the Federal Executive Council and help the government deliver the proverbial dividend of democracy and put the Nigerian economy in the path of progress. Also, there is the ongoing volatility due to the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all time, using multiple time frame analysis to catch short, medium and long term buy breakouts or sell breakdowns.
Looking at the trading volume patterns, blue-chip companies and low cap stocks witnessed buying sentiment on the strength of value oriented sector rotation, and considering the mix earnings reports. We note that some companies posted surprising results, while others came well below market expectations. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against the surging inflation.
As NGX extends it markup phase in the face of S&P upgrading the nation’s credit rating and positive sentiment for banking and energy stocks, just as the market and most of the individual companies Price/Earnings ratios reveal their undervalued state and higher upside potentials to attract liquidity and positive sentiment. As the economic managers are expected to give clear direction of government policies and implementation. This why there is the need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The market remains above the 65,000 mark to trade above the ‘T line’ and above the 50-day moving average, attracting bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of scorecards of many companies to the market. It is therefore time to use technical tools, if you have been ignoring 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.
At this time, it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged so far.
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Oil price oscillation continued, as it pulled back sharply to trade at $84.59 per barrel in the midst of weak demand for oil by china and cheaper shale oil in the face of voluntary output cut by some oil producing nations. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Monday’s trading opened slightly in the upside and it was sustained for the rest of the session, despite oscillating on increased buying interests in blue chip companies and profit taking. This pushed the Index to an intraday high of 65,340.30 basis points, from its lows of 65,192.00bps, before closing marginally above the opening level at 65,336.80bps.
Market technicals were positive and mixed with a lower volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 98% buy position and 2% sell volume. The total transaction volume index stood at 0.36 points, just as the energy behind the day’s performance was relatively strong, with Money Flow Index reading 67.33pts, from the previous day’s 69.22pts, indicating that funds left the market.
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Index and Market Caps
At the end Monday’s trading, the benchmark index NGXASI, inched up by 138.72basis points, closing at 65,336.80bps, from its 65,198.08bps opening level, representing a 0.21%up. Market capitalization also rose by N76bn to N35.56tr, from the previous day’s N35.48tr, which also represented a 0.21% value gain.
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Monday’s upturn was driven by position taking in shares of MTNN, BUA Foods, GTCO, UBA, Fidelity Bank, Eterna, GSK, Wema Bank, Enamelware and Sunu Assurance, among others. This impacted positively on Year-To-Date growth, which inched up to 27.50%, while Market Capitalization YTD gain slowed down to N6.38tr, representing a 27.47% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Banking and Energy closed high by 0.81% and 0.12% respectively, while the NGX Insurance led the decliners after losing 1.16%, followed by Consumer goods and Industrial Goods with 0.05% and 0.01% respectively.
Market breadth was slightly positive, as gainers outnumbered losers in the ratio of 25:24, while transactions in volume and value were down after investors exchanged 334.33m shares worth N3.89bn, driven by trades in SterlingNG, FCMB, Fidelity Bank, Japaul Gold and Accesscorp.
Enamelware and Wema Bank were the best performing stocks, gaining 9.86% and 9.77%, respectively, to close at N19.50 and N4.72 per share respectively, on market forces. On the flip side, Omatek and Prestige Assurance lost 8.82% and 7.84% respectively, closing at N-.31 and N0.47per share, purely on the back of selloffs and profit taking

Market Outlook
We expect mixed sentiments on profit taking and bargain hunting, as market players digest corporate actions of interim dividend ahead of the July inflation data and earnings reports of first-tier banks even as pullbacks create buying opportunity amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605