NGX At Breakout, Fakeout Crossroad Amidst Expected 50bps Rate Hike, Economic Headwinds

Market Update for May 23

Accumulation activities on the Nigerian Exchange continued on Tuesday, as the market ranged amid buying interests in some blue chip companies and selloffs in medium cap stocks which has kept the NGX on consolidation mood at strong resistance level of 52,658.89 basis points while support level is 52,044.02bps. This is coming in the midst of macroeconomic headwinds, impressive Q1 corporate earnings and the ongoing Monetary Policy Committee meeting with all eyes on its outcome, ahead of next week’s inauguration of new administrations at the federal level as well as across 28 states.
The NGX All-Share index closed higher on a low traded volume but positive market breadth, extending the bull-run for a third consecutive session while liquidity level remains relatively high. This is coming in the midst of the gradual return of confidence in the market as revealed by the buying pressure and low prices that had attracted new entrants into fundamentally strong companies with growth prospect. There is the high hope that the incoming government will be pro-economy and market, two ingredients needed to drive developments and enhance the living standard of Nigerians. These factors are likely to impact the market and drive positive sentiment on the back of policy statements and appointment of economic managers to support the renewed hope mantra.
The buying interest and positive sentiments in some value companies continued as core investors plough their dividend incomes back into the market, a situation that has supported the flow of funds into the equity space as revealed by money flow index and candlestick formation at the end of the day’s trading. Also, the market awaits the audited financials of March year-end companies.
The market currently trades above the 20-Day Simple Moving Average on the daily chart, while heading to 50 DMA that had been a strong resistance level recently. A breakout will confirm a golden cross, but with all eyes on the outcome of the CBN’s policy meeting, even when it seems the likelihood of a 25 basis point hike had been factored into the market by investors. This situation calls for caution, but should guide technical traders and discerning investors, based on the dividend yields and low market Price to Earnings Ratio that provide better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation. Market volatility remains at the extreme on positive sentiment as T-line turned support for index action ahead of the next market forces and statement.
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Oil price oscillation continued as it rebound to trade at $77.77 per barrel in the midst of surprise inventory draw and fear of US debt ceiling default. As China economic recovery remain weak in the face of central banks rates hike that is driving economic contraction in the midst Ukraine and Russia war. This is in addition to rising geopolitical tension across the globe, the prevailing high interest rate regime and soaring inflation, despite slowing down across the globe remain potent threat to world economy. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Tuesday’s trading opened in the upside and was sustained for the rest of the session, on position taking in banking stocks and others, a situation that pushed the NGX All-Share Index to an intraday high of 52,621.19bps where it closed, from its lows of 52,361.95ps.
Market technicals were positive and strong with higher volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.55 points, just as momentum behind the day’s performance was strong, with Money Flow Index reads 83.63pts, from the previous day’s 76.49pts, indicating that funds entered the market.
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Index and Market Caps
At the end of Tuesday’s trading, the benchmark NGX All-Share Index gained 252.06bps, closing at 52,621.19bps, from its 52,369.13bps opening level, representing a 0.48% growth, just as market capitalization rose by N137.29bn to N28.65tr, from the previous day’s N28.52tr, which also represented a 0.48% appreciation in value.
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The day’s upturn was driven by buying interest and accumulation in the shares of GTCO, Zwnith Bank, Stanbic IBTC, Accesscorp, Unilever, Academy Press, Nahco, SterlingNG, PZ, Transcorp and Honeywell Flour among others, which impacted positively on Year-To-Date gain which reduced to 2.67%. Market capitalization YTD gain slowed down to N315.24bn, representing 2.64% above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes closed green, save for the NGX Insurance that closed slightly in the red slipping 0.01% down, while the NGX Banking led the advancers after gaining 1.55%, followed by Consumer, Energy and Industrial goods with 0.35%, 0.04% and 0.02% respectively.
Market breadth was positive as gainers surpassed losers in the ratio of 33:14, while activities in volume and value were up after players exchanged 350.97m shares worth N5.17bn, driven by trades in UBA, Zenith Bank, GTCO, Accesscorp and Transcorp.
Transcorp and Tripple Gee were the best performing stocks, gaining 9.85% and 9.83% respectively, closing at N2.90 and N3.24 per share, on market forces and sentiment. On the flip side, Sunu Assurance and C & I Leasing lost 9.43% and 8.83% respectively, closing at N0.48 and N3.20per share, purely on profit taking and selloff.

Market Outlook
We expect mixed sentiments to continue on buying interests in value stocks and profit taking, as payments for dividend to support market liquidity, just as investors reposition their portfolio ahead of markdown dates, Q1 GDP, MPC meeting outcome and dividend payments.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios post-dividend adjustments. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit. Also looking at the trends and events across the globe and domestically.

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