Market Update for the Week Ended March 5 and Outlook for March 8-12
The first trading week in the month of March, the peak of the full-year earnings reporting season for companies with December year-ends closed bearish, extending five consecutive weeks of price corrections and pullbacks. Last week’s loss was however on a reduced momentum signaling a gradual return of bargain hunters as the prevailing prices continue to impact positively on dividend yields of many stocks making the general yields of equities attractive for income investors.
As advised during our question and answer session some weeks ago, the prevailing market situation calls for defensive playing as companies’ earnings are given insights into where the companies and the economy are headed. If you are still in a numbers of growth stocks, it is past time to cut your loss.
As shown by the market’s trading pattern, real economy stocks might hold up better. However, that does not mean they would not fall. As such investors should hold cash at this time, especially those who were able to sell their 50% holding before now. Potential new entrants should equally wait to identify strong support levels of the market and individual stocks before jumping into any position.
Investors and traders should use the current trend to build their watch list, focusing heavily on sectors and stocks with rising or high Relative Strength Index lines. Keeping in mind that equities may hold up for a time, then finally give way. As at Thursday last week Lafarge Africa, and some banking stocks, for example, were signaling a buy. So, that the losing momentum is reducing does not mean the correction or pullbacks are over. It can however lead to when the market situation is truly favorable, given that more corporate earnings are expected in the market, even as crude oil prices continue to look up at the international markets.
The selling wave in the market on the daily chart as at Friday shows the possibility of buyers returning to the market, after the ongoing portfolio realignment and revaluation in the midst of earnings season. Nothing stop the equity market rebounding concurrently with the upward trend in fixed income market yields. It has happened in years past, as such let us change our investing and trading strategies in line with market dynamics and your investment objective.
Movement Of NSEASI
It was a bearish week of four sessions of down markets and one gain, due to continued selloffs and profit-taking driven by panic selling as a result of rising yields in the nation treasury bills and bond markets. There were also portfolio realignments in the face of oscillating oil prices in the international market and earnings season as many company’s numbers and dividend news beat market expectation, but this failed to provide the needed support due to weak liquidity and sentiments.
The week began with the composite NSE All-Share index opening on the upside, and halting the previous week’s negative outing. On Monday, the NSE index gained 0.33% on a rekindle buying interest among investors and traders, a trend that was reversed on Tuesday and for the rest of the period when the benchmark index closed 0.59%, 045%, 0.40% and 0.08% lower respectively on selloffs in blue chip stocks.
This brought the week’s cumulative loss to 1.18%, higher than previous week’s 0.96% decline, on less than average traded volume and negative breadth, cutting the loss arising from the market correction from its peak to 7.26% loss, while YTD the loss position stood at 2.33%.
Consequently, the All-Share index lost 468.28 basis points during the week, closing at 39,331.61bps, after opening the week at 39,799.89bps. Within the period, the index touched an intra-week low of 39,227.15bps, compared to a high of 39,984.05bps, a situation attributed to selloffs across various categories of stocks. Also, market capitalization shed N26.21bn. closing at N20.58tr, from the previous weekend’s N20.82tr, representing 1.18% depreciation in value.
The advancers table was dominated by high, medium and low cap stocks for week on a low gain to reflect the selloffs among high and medium cap stocks, with the trading and price pattern revealing profit taking and selloffs in the midst of mixed sentiment as dividend stocks with high yields suffered losses during the period.
During the period, decliners outpaced advancers in the ratio of 71:14 on a selling sentiment and weak momentum as Money Flow Index read 58.76bps, down from 59.70 points in the previous week. During the week also, five companies released their audited 2020 full-year results, with dividend reward for investorsas more firms notified the investing public of their closed period and board meetings.
NSEASI WEEKLY CHART MOVEMENT
The bearish trend of NSE’s index action continued on negative sentiment and volatility in the midst of changing price patterns on mixed sentiments, as dividend investors accumulate positionsin dividend paying stocks as more 2020 financials hit the market. Also, the index is just trading on the 14-Day Moving Average and above 20, 50 and 200-DMA on a weekly chart, despite breaking down the 40,000-mark strong support level on less than average traded volume and selling sentiments. This is likely to reverse as more players’ position for the rest of the month in expectation of earnings and quarter end repositioning ahead of Q2.
Nevertheless, it is expected that the market will rebound at any time soon especially, as more listed companies releases their numbers to the market and trading above the 38,461.34bps level.
The strong support level to watch out for on the NSE is within the 39,000 and 38,461.46bps, and a breakdown of these levels, will attract new positioning by traders. This is coming at a t time crude oil is trading above $65 per barrel at the international market, while the government officials have kick start the vaccination by being vaccinated on the national television to dismiss fear or rumor about the vaccines,
However, we envisage a mixed outlook for the rest of Q1, while not ruling out profit booking as its ongoing, especially since the market had recorded an uptrend last year.
Our mixed outlook is hinged on such factors as the possible impact of the corporate earnings, mismatch policies of government and Central Bank of Nigeria as COVID-19 vaccine first batch importation had arrived. There are also other factors like 2021 capital budget, implications of oil prices trading above $65 per barrel on the nation’s revenue, just as Money Flow Index and MACD have turn bearish on a weekly chart.
‘Sell’ volume for the period stood at 86% and buy position at 14% with total transaction index at 1.01.
Bearish Sectoral Indices
The sectoral indexes closed the week down, except for NSE Industrial goods that closed higher by 1.39%, while NSE Consumer goods led the decliners after losing 6.30%, followed by Insurance, Oil/Gas and Banking that closed 4.99%, 2.27% and 1.84% lower respectively.
The general market’s outlook remains dicey and mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital.This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.
The recent market pullbackscall for portfolio adjustments and realignments, as unaudited and audited numbers from some companies and sectors will expectedly come mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.
Transaction in volume and value terms were up during the week by 8.38% and 43.85% respectively, as investors exchanged 2.09bn shares worth N29.74bn, compared to previous week’s 1.93bn units valued at N20.66bn. Volume was driven by trades in FinancialServices, Consumer Goods and Conglomerates sectors, particularly stocks like Wema Bank, AXA Mansard Insurance, Zenith Bank, Guaranty Trust Bank and Transcorp.
The best performing stocks in the week were Morison Industry and Skyway Aviation, which gained 20% and 9.54% respectively, closing at N0.66 and N3.33 each on market forces, while Champion Breweries and Japaul Gold lost 33.33% and 28.99% respectively, at N1.68 and N0.49 per share on profit booking.
Market Outlook
We expect the market to experience mixed performance but on reduced losing momentum and profits taking, as bargain hunters increase their buying position on pullbacks to reposition their portfolios ahead of more earnings reports and reactions to expected numbers, especially as dividend yields remain relatively high.
We advise that you target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking the way of mispriced ones, especially given the low interest rates regime and sustained oil price rally that have so far supported the economy and equity market.
There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI read 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 the 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.
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
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
