Mixed Trend, Profit Booking, As Bargain Hunters Position Ahead Of H1 Earnings
Market Update for July 6
The sector rotation and bullish sentiment continued on the Nigerian Exchange Tuesday, after the benchmark index experienced a very volatile session, closing higher on very high traded volume and positive breadth that revealed increased buying interests especially in the banking, energy sectors and dividend paying stocks, as well as mispriced equities in the market.
Given the expectation of likely positive or better corporate earnings as recorded in the previous quarter scorecards, players are jumping into position ahead of the actual numbers that kickoff any moment from now, since these earnings and economic data will reveal the real state economy and market direction.
Repositioning in the sectors with strong potential to grow in the midst of stagflation and weak economic recovery, is the way to go, targeting individual stocks with sound fundamentals and positive base charts and pattern, many of which have recently broken out their resistance levels on high traded volume to tell you where they are heading. Knowing that the earnings reporting season comes with different momentum, activities level, and inflow, at this point, we will refer you to our video, “How to profitably trade or invest with earnings season in any market situation”
Meanwhile, technically, the NGX index action before now has signaled what is happening on the exchange right now, through the candlesticks formation, chart patterns, volume factor and technical indicators for discerning traders and investors to take advantage of early positioning. These, we have emphasized in our daily updates, Questions& Answers sessions, TV programmes and master classes.
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Tuesday’s trading started on the upside in the morning, which was sustained throughout the session, despite oscillating on accumulation in blue-chip dividend paying stocks and profit taking among the low priced equities that push NGX index to an intraday high of 38,418.04 basis points from its lows of 38,220.01bps.
Market technicals were positive and strong, with volume traded higher than previous day’s, in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 1.31 points, just as momentum behind the day’s performance was relatively strong, as seen in the 58.85pts Money Flow Index, compared to previous day’s 48,48pts, indicating that funds entered the market.
Index and Market Caps
At the close of the day’s trading, the composite NGX All-Share index gained 198.04 basis points, closing at 38,418.04bps, from an opening level of 38,220.01bps, representing a 0.52% growth, just as market capitalization rose by N103.22bn, closing at N20.03tr, from its opening value of N19.92tr, representing a 0.52% appreciation in value. Also notable is the fact that many indicators have confirmed a bullish trend on a daily time frame, just as the index is expected to breakout these resistance levels of 28,454.68 and 38,678.48 to confirm a strong recovery move.
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The day’s uptrend was driven by increased buying interests in Total Nigeria, Seplat, Flour Mills, May & Baker, Vitafoam, Access Bank, Stanbic IBTC, UBA, Zenith Bank, Lafarge Africa, Ecobank Transnational Incorporated, FBNH and Livestock Feeds, among others. This impacted positively on Year-To-Date loss, cutting it to 4.60%, while the drop in market capitalization YTD stood at N1.03tr, representing a 4.89% drop from its opening value for the year.
Performance indexes across sectors were bullish, except for NGX Insurance that closed 0.31% lower, while the NGX Energy led the advancers after gaining 4.90%, followed by Banking, Industrial and Consumer goods with 3.29%, 0.08% and 0.07% higher respectively.
Market breadth remained positive as gainers outnumbered losers in the ratio of 28:10, while activities in volume and value terms were up after investors had traded 288.93m shares worth N2.42bn. Volume was driven by trades in Fidelity Bank, FBNH, UBA, Access Bank and Wema Bank.
May & Baker and UACN Property were the best performing stocks after gaining 9.65% and 9.57%, closing at N4.43 and N1.03 per share respectively on earnings expectations and market sentiment. On the flipside, Eterna and Linkage Assurance lost 9.73% and 9.41% respectively, closing at N6.71 and N0.77per share, on profit taking.
We expect a mixed trend, on profit booking and half year earnings reporting season kicking off any time soon after forming a wave that support an uptrend as bargain hunters take advantage of pullbacks to reposition ahead of Q2 numbers. It is noteworthy that oil price continues its recovery at the international market, even as corporate actions and interim dividend possibilities around the corner.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.
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