Mixed Trend, Profit-taking, Amid Buying Interests, As Smart Money Repositions For Q2 Earnings

Market Update for July 12

Equity prices slipped further on the Nigerian Exchange amidst correction and profit-taking continued Monday, following which the benchmark index closed negative on a low traded volume, but positive breadth, thereby extending the bearish transition for the third successive session as the market prepares for more half-year financials and the June Consumer Price Index report that are underway.

The prevailing mixed sentiments and Monday’s NGX index action divergence with the indicators on a low traded volume are signals that reversal is imminent, knowing the power of volume in price or index movement is very important at this point. Also, the volume drying up ahead of strong support of 37,804.17 indicates the dearth of supply, as smart money moves to lock traders into poor position and markup prices.

We know that corporate and analyst forecasts are made to be beaten. In fact, many analysts have typically increased estimates for Q2 numbers while companies are forecasting higher earnings in Q3, even as higher-than-expected earnings will make stocks cheaper.  At the moment, the market’s Price-to-Earnings ratio, just like those of many companies, is trading below 18 times their earnings. In an environment of relatively low interest and high inflation, stocks historically, tend to move higher on earnings performance.

In the current state of the market and economic recovery, we see a higher path for stocks in the midst of yields slowing down and rising inflation. At this point, players should manage their positions and not panic out of good fundamentally sound stocks with positive chart base and pattern.

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Meanwhile, Monday’s trading opened on the downside and oscillated to sustain the negative trend on a sell pressure and profit-taking in high cap stocks that pushed the NGX index to an intraday low of 37,852.03 basis points from its highs of 37,994.27bps, and thereafter closed below its opening figure at 37,857.89bps.

Market technicals for the session were weak and mixed, with volume traded lower than the previous day’s, in the midst of breadth favouring bulls on negative sentiments as revealed by Investdata’s Sentiments Report showing 96% ‘sell’ volume and 4% buy position. The total transaction volume index stood at 0.84 points, just as the energy behind the day’s performance was relatively strong, as seen in the 53.21pts Money Flow Index, compared to the previous day’s 52.67pts, indicating that funds enter the market, despite sliding down.

Index and Market Caps

The composite index, at the end of the day trading, lost 136.30 basis points, closing at 37, 857.89bps, from an opening level of 38,994.19bps, representing a 0.36% decline, just as market capitalization fell by N71.01bn, closing at N19.72tr, from its opening value of N19.95tr, representing a 0.36% value loss. 

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Monday’s downturn was due to selloffs and profit-taking in MTNN, BUA Cement, Zenith Bank, Access Bank, FBNH, Ecobank Transnational Incorporated, PZ Cussons, International Brewery, and GSK, among others. This impacted negatively on Year-To-Date loss, increasing it to 5.99%, while the drop in market capitalization YTD inched up to N1.84tr, representing a 6.45% drop from its opening value for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for NGX Oil/Gas that inched 0.05% up, while NGX Banking index led the decliners, after shedding 1.02%, followed by Consumer, Industrial Goods, and Insurance with 0.37%, 0.35% and 0.03% respectively.

Market breadth was, however, positive with gainers outnumbering losers in the ratio of 16:13, while activities in volume and value terms fell after stockbrokers traded 187.24m shares worth N2.89bn, with volume driven by trades in Zenith Bank, Sovereign Trust Insurance, UBA, Mutual Benefits Assurance, and Transcorp.

Tripple Gee and Regency Insurance were the best-performing stocks, gaining 9.89% and 8.89%, closing at N1.00 and N0.49 per share respectively on dividend news and market forces.  On the flipside, CWG and international Brewery lost 9.52% and 5.62% respectively, closing at N1.14 and N5.00per share, on selloffs.

Market Outlook

We expect a mixed trend, on profit-taking and renew buying interests ahead of the release of more Q2 numbers any moment from now, amid the declining volume and divergence that supports an uptrend while smart money takes advantage of pullbacks to reposition ahead of earnings and economic data expectations. 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 the coming week.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605

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