NSE Consumer Goods giant, Nestle has continued to recover from the downturn in its share price, arising from the weak macro-economic environment made worse by the shortage of forex and high cost of financing that triggered a sell off to 52-week low of N570 per share. Thereafter, there was a rebound on the strength of the full year earnings performance that beat market expectation which was released with unexpected dividend payment of N10 that signaled recovery in profitability.
As the market expects the company’s first quarter result, the possibility that it could beat market forecast is high to sustain the recovery, especially with the improving supply side of the forex market, declining inflation rate and the restoration of peace to the vast Northern region, which also serves as a gateway to North Africa. This is expected to boost sales and reduce goods on its shelves.
The stock has recently side-trended waiting for a trigger which the expected numbers will do to reverse the current pullback. Income investors and retiree should look the stock for capital preservation.
Nestle’s price action has formed a symmetric triangle chart pattern that supports reversal or continuation of the trend. Earnings reaction may lead to breakout level at N730.50, which will be a good point to position again by buying into the company for short term trading.
On balance volume (OBV) it has revealed a strong decline wave that lasted for just two months into the company’s first quarter of 2017 before 2016 financial year result were released. The possibility of uptrend at this current market level and price is a 50:50 chance, but a strong retracement at this point is the strong point to buy.
Nestle has a 100% buy position while sell volume is 0% as revealed by the volume index at 0.51, with trending ability and direction strong on a daily time frame of ADX above 20 reading 40.64. Traders should fix their gaze on the market and the stock trend to position around N730 to N750 range.