NGSE Index Drops In Likely Onset Of Market Correction, long-term Positioning

Market Update for June 15

Equity prices on the Nigerian Stock Exchange (NSE) nosedive on Monday to start the week on a negative note and low traded volume, thereby extending the two-day losing streak that broke down the consolidation line and the side ranging movement. The NSE index, in the process tested its 20-Day Moving Average, while finding support capable of sending a bearish or recovery cue.

Monday’s mixed sentiment and volatility were due to indecision among market players, profit booking among highly capitalized stocks and fear of a resurgence of the deadly Coronavirus (COVID-19) pandemic, which has continued to threaten the global economy. However, we note that telecommunication and healthcare companies continue to take advantage of the pandemic to boost their businesses and operation, a situation expected to impact their bottom lines.

This is going to be a major turning point for stocks this week, given the myriad of patterns formed, while sentiments are already dwindling with the Money Flow Index looking down and signaling selloffs in medium, high cap and blue chip stocks. Personally, I love what has been happening in the market over the past two weeks, which is long overdue after the two bear market rallies, and price corrections which will create buying opportunities for those who missed the March dip, while supporting a stronger recovery wave.

To take advantage of this expected pullback and Q2 earnings season that is around the corner, get the videos and home study pack on mastering earnings season for profitable trading and investing in any market situation/cycle. Understanding stock market dynamics and using numbers and dates to invest by effectively combining technical and fundamental analyses tools to trade wisely.

Meanwhile, Monday’s trading opened slightly in the green, before pulling back between mid-mornings and midday, oscillating in the afternoon with positioning on profit taking that pushed the benchmark All-Share index below the 25,000 mark. The index also touched an intraday low of 24,757.68 basis points, from a high of 25,196.62bps, after which the session closed lower at 24,945.25bps on a negative breadth.

Market technicals for the day were negative and mixed, as volume traded was lower than the previous session’s, with breadth favoring the bears and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 45% and sell volume of 55%. Total daily transaction volume index stood at 0.78, just as the energy behind the day’s performance stayed relatively strong, with Money Flow Index reading 68.42points, dropping from the previous 75.46ps. This indicates that funds are leaving the market on profit taking.

Index and Market Caps

The key performance index at the end of Monday trading shed 226.63bps, closing at 24,945.25ps, from the 25,182.67bps it opened, representing a 0.91% decline, while market capitalisation lost N119.15bn to N13.01tr from an opening value of N13.14tr, representing a 0.91% value loss.

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Monday’s downturn was impacted by profit taking in medium and high cap stocks like MTNN, BUA Cement, Zenith Bank, Guaranty Trust Bank, Ecobank Transnational Incorporated and GSK. This impacted negatively on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 7.09%, while market capitalization YTD gains stood at N89.12bn, representing a 0.35% up from the year’s opening level.

Bearish Sector Indices

Performance indexes across the sectors were largely bearish, except for the NSE Insurance index that closed 0.88% higher, while the NSE Banking index led the decliners after losing 1.93%, followed by the NSE Industrial Goods and OIL/Gas with 1.44% and 0.33% respectively. Market breadth was negative as the decliners outnumbered advancers in the ratio of 27:17, while activities in volume and value terms dropped by 29.51% and 52.73% respectively to 237.61m shares worth N1.61bn, from the previous day’s 337.13m units, valued at N3.41bn.  Volume was driven by trades in FBNH, Zenith Bank, FCMB, Caverton and UBA.

Fidson Healthcare and Redstar Express were the best performing stocks of the day, after gaining 10% each, closing at N3.30and N3.63per share respectively on 15 kobo dividend and expectation of full year 2020 audited account. On the flip side, Prestige Assurance and Neimeth Pharm lost 10% and 9.7% respectively, closing at N0.63and N2.32 per share respectivelyon profit taking.

Market Outlook

Profit taking is likely to continue as a way of price correction to create opportunity for long-term positioning as economic recovery is expected to come fast on government and CBN intervention ahead of May inflation figure and Q2 earnings reports. This also implies that opportunities are still available as sectorial rotation continued.  Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers 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 going forward.

This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

 Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond , How to invest or trade profitably in a changing market dynamics and recession and mastering earnings season for profitable investment are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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