Mixed Trends Ahead, As NSEASI Set To Breakout 2017 highs, Gains N1.0tr YTD

Market Update for January 28

The bullish nature of the Nigerian Stock Exchange (NSE) continued Thursday, but at a decreasing momentum, with month-end trading pattern dynamics revealing the possibility of profit booking. This was especially as the benchmark All-Share index extended its bull run for the fourth consecutive trading session, closing higher on improved transaction volume and buying position.

Also on Thursday, the market finally broke out the of 42,000 psychological line, helped by the influx of unaudited corporate earnings offering n insight into what investors should expect from the 2020 December year-end audited earnings reports. This is in the midst of positive sentiments that have been helped by the decision of the Central Bank of Nigeria Monetary Policy Committee (MPC) to leave rates unchanged, following which funds continue to enter the market as indicated by money flow index and sentiment report. It is safe to expect mixed trends and sentiments, with the NSE’s index action set to breakout 2017 highs. 

Consequently, we advise that players should take advantage of breakouts to position in dividend-paying stocks, with numbers likely to beat expectation, given that the factors driving the rally remain intact. We note too that trading patterns are supporting mispriced stocks and high yield dividend-paying companies. However, let us not forget that profit taking and price correction are integral parts of stock market investing or trading.

The numbers released so far are providing a more directional investment strategy for investors, but the continued upward trend could also be linked to the several moves by the government, especially through the CBN to take the economic out of recession. We note too that corporate earnings and indeed the stock market are already pointing to a recovery from recession.  Despite these moves, we advise that traders and investors should play with caution, considering the sharp movement in the market and happenings around the globe.

Meanwhile, Thursday trading opened on the upside and was sustained throughout the session on increased accumulation of dividend stocks, a situation that pushed the NSE index to an intraday high of 42,192.82 basis points, from lows of 41,924.82bps. Thereafter, it closed the day at 42,169,41bps.

Thursday’s market technicals were positive and strong, with higher volume traded than previous day’s in the midst of positive breadthand buying sentiment as revealed by Investdata’s Sentiments Report showing 91% ‘buy’ and 9% sell position. Total transaction volume index stood at 1.02 points, just as the energy behind the day’s performance remained relatively strong, with Money flow index reading 56.40pts, from the previous day’s 51.78pts, indicating that new funds entered the market.

Index and Market Caps

The composite index, at the end of Thursday’s trading, gained 238.68bps, closing at 42,169.41bps after opening at 41,930.73bps, representing a 0.57% up, just as market capitalization rose by N124.86bn, crossing the N22tr level, its historic high at  N22.06tr, from its opening value of N21.93tr, also representing a 0.57% appreciation in  value.

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Thursday’s uptrend was driven by demand for banking stocks and others like Julius Berger, Flourmills, NB, Guinness, Dangote Sugar,Lafarge Africa and Vitafoam, raising Year-To-Date gain mildly to 4.71%, just as YTD gain in market capitalization stood at N1.002tr, or 4.76%.

Mixed Sector Indices

The sectoral performance indexes were mixed, as the NSE Oil/Gas and Insurance closed lower by 1.75% and 0.56% respectively, while the Banking index led the advancers after gaining 2.11%, followed by Consumer and Industrial Goods, with 0.94% and 0.21% respectively up.

Market breadth was positive as advancers outnumbered decliners in the ratio of 28:21; just as activities in volume and value terms were mixed with volume traded rising by 2.17% to 555.32m shares, from the previous day 543.6m units, while transaction value declined by 21.26% to N5.76bn from midweek’s N7.32bn. The day’s volume was boosted by activities in Transcorp, UBN, Zenith Bank, Dangote Sugar and UACN.

Portland Paints and Julius Berger were the best performing stocks, after gaining 10% and 9.95% respectively, closing at N3.19 and N22.65 per share, on market sentiment and forces. On the flip side, Skyway Aviation and Cornerstone Insurance lost 10% and 9.72%, closing at N2.88 and N0.65per share on profit booking.

Market Outlook

Being the last trading day of the week and month, we expect a mixed performance and profits taking, after the NSEASI broke out the 42,000bps to trade outside the upper Bollinger band line on a new trend amidst the persisting buying interests in mispriced companies and dividend-paying stocks, and ahead of the market’s major earnings reporting season. This is especially as the low interest rates regime and oil price have so far supported the Nigerian economy and equity market.

There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued state of the market offers investors 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 in the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467