Mixed Trends May Linger On Profit Booking, Positioning In Dividend Stocks

Market Update for February 2
Profit booking in blue-chips and across the sectors on the Nigerian Exchange at the midweek halted three consecutive sessions of bull-run on a high traded volume and negative breadth, which drained the composite index slightly.
The negative sentiment, or sell pressure was majorly on financial stocks that recently broke out their 52-week highs, as investors repositioned their portfolios ahead of the 2021 year-end corporate actions that are likely to kick off next week, all things being equal.

Midweek’s session witnessed a pullback as traders cashed out their profit from the recent rally. The NGX index action has slowed down to signal a change of trend that needs confirmation, even as the market broke down the psychological line of 47,000 mark, after touching 47,131 basis points on a high volume. Trade metrics revealed mixed technicals, as selling sentiments for banking and insurance stocks were high.

The day’s candlestick formation indicates a change in market and trade characteristics, notwithstanding that the benchmark All-Share index is still trading above the 20, 50 and 200-Day Moving Averages, while momentum indicators were mixed as the ADX read 56.82, RSI closed above 50 at 76.10 and Money Flow Index is looking up at 71.91 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as direction of the fixed income market yields remains unclear, in the midst of the NTB primary market auction rates declined.

Meanwhile, Wednesday’s trading started slightly on the upside, before pulling back on selloffs and profit taking across the sectors, pulling the key performance index to an intraday low of 46,901.44bps, from its highs of 47,131.29bps. Thereafter, the index closed below its opening figure at 46,930.661bps.

Market technicals were negative and mixed as volume traded was higher than the previous day’s in the midst of breadth favouring the bears on a selling sentiment as revealed by Investdata’s Sentiment Report showing 87% sell volume and 13% buy position. The total transaction volume index stood at 1.36 points, just as momentum behind the day’s performance remained strong.

Money Flow Index is looking up at 71.91 points, from the previous day’s 71.04 points, indicating that funds entered the market marginally.  
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Index and Mkt Cap Movement 
At the end of midweek trading, the NGXASI shed 183.23 basis points, at 47,111.21bps, after opening at 47,11.21bps, representing a 0.38% decline. Market capitalization fell by N97.29bn, closing at N25.29tr, from the opening value of N25.39tr, also representing a 0.38% value loss.
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We note the decision by the Federal Government to postpone its planned removal of subsidy on premium motor spirit, popularly called petrol for another 18 months. Continuing with the planned removal without fixing the refineries and critical infrastructure would have worsened the already terrible living conditions of most Nigerians, heightening inflation rate and throwing many more investments into a negative real rate of return.

Wednesday’s downturn was driven by selloff in MTNN, Lafarge Africa, Unilever, Zenith Bank, Access Bank, UBA, Honeywell, Fidson, United capital, Dangote Sugar and GTCO, among others. This impacted negatively on Year-To-Date gain, reducing it to 9.87%. Market capitalization growth stood at N2.73tr YTD, representing a 14.79% rise over the opening level for the year.

Bearish Sector Indices 
Performance indexes across the sectors were in down, except for NGX Consumer goods that was flat, while NGX Banking led the decliners after losing 1.39%, followed by Insurance, Energy and Industrial goods with 1.85%, 0.41% and 0.17% respectively.
Market breadth turned negative as losers outnumbered gainers in the ratio of 32:21, while activities in volume and value terms were mixed, after stockbrokers traded 434.95m shares worth N6.24bn, compared to previous day’s 341.52m units valued at N3.69bn.

Volume was boosted by trades in Fidelity Bank, Transcorp, Courtville Business Solution, Zenith Bank and GTCO.
Ikeja Hotel and Conoil were the best performing stocks during the session, after gaining 10% and 9.79% respectively, closing at N1.80 and N26 40 per share, owing to possitive market sentiments. On the flip side, ABC Transport and Courteville lost 8.37% and 5.90% respectively, closing at N0.33 and N0.54 per share, purely on market forces and selloffs.

Market Outlook
We expect mixed trend and sentiments to continue in the midst of profit booking and position taking in fundamentally sound and dividend paying stocks in expectation of more corporate earnings, as oil price oscillates to trade at $89.88, which is one factor that also continues to support economic and market fundamentals.

Also, investors are targeting dividend paying stocks as they reposition portfolios ahead of 2021 full-year audited earnings reports. Also, MPC outcome and NTB primary market auction rates that decline on short and long tenor should be a plus for the equity market. Just as inflation remain high at 15.63%. Also noteworthy is the oil price that remains above $74 projection of IMF at $90, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

As market players digest the outcome of the two events during the week and happenings in fixed income market after the NGX index action pullback to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and January Effect rally pattern which has influenced stock prices ahead of audited 2021 earnings season.
The relatively low volume traded in the midst of uptrend and recovery moves are creating new buy opportunities on the strength of the Q3 numbers.

Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet.  It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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

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