NGX Pullback Offers Positioning Opportunities Ahead Of Q3 Earnings Season

Market Update for October 11

The new week started mixed and down on the Nigerian Exchange, Monday after sellers dominated buyers amidst profit-taking to closed the key performance NGX All-Share Index lower, and thereby halting seven consecutive days of bull run on a low traded volume and flat market breadth. 

The trading session witnessed a series of price corrections as expected, even as this pullback ought not to cause panic to the market but create opportunities for repositioning in fundamentally sound stocks. The pullback also offers the market recovery more strength to rally higher, especially if the Q3 earnings being expected beat market expectations.

The market slowdown or pullback after sessions of rally is normal and okay, as profit taking is part and parcel of stock market dynamics and makes the market graph not straight under any situation or cycle, no matter which of the four phases- accumulation, markup, distribution and decline, the market is. Understanding these phases as an investor or trader, and applying it to the market, sector rotation, and stock selection, will make the difference in your trading and investing decisions for higher profit.

Technically, the market has adjusted back for momentum, but a new uptrend will be confirmed when the NGX index action breaks out the resistance levels of 40,884.19bps and 41,014.22bps, which is possible this week and next when Q3 numbers start hitting the market. The state of expected earnings reports and level of liquidity in the equity space will determine the possibility of another rally in October. All eyes are on the Treasury Bills Primary Market Auction rates this Wednesday, even as transactions in the two and three-year savings bond with rates of 6.9% and 7.9% respectively are being concluded. The money flow index slipped down slightly to 84.98points to reflect the profit booking activities of investors.

Investors should hold onto their high value and growth stock positions, even as direction in the fixed income market by way of yields and rates is still not clear, which is not unexpected since funds flow to where there are higher returns.

Meanwhile, Monday’s trading opened in the green and oscillated for the rest of the session on positioning and profit-taking that pushed the NGX index to an intraday low of 40,596.68 basis points, from its highs of 40,877.68bps, after which it closed below the opening points at 40,714.22bps.

Market technicals were weak and mixed as the volume traded was lower than the previous day’s in the midst of a flat breadth and mixed sentiment as revealed by Investdata’s Sentiment Report showing 42% ‘buy’ position and 58% sell volume. The total transaction volume index stood at 0.70 points, just as the impetus behind the day’s performance was strong, but slowed down as Money Flow Index dropped to 84.98points, from the previous day’s 89.37 points, indicating that some funds left the market.

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Index and Market Caps

The composite index NGXASI, at the close of day trading, shed 154.14 basis points and closed at 40,714.22bps after opening at 40,868.36bps, representing a 0.38% decline, just as market capitalization fell by N80.32bn, closing at N21.22tr, from the opening value of N21.30tr, also representing 0.38% value loss.

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Monday downturn was driven by profit taking and selloffs in stocks like BUA Cement, NB, GTCO, Guinness, Honeywell, University Press, Stanbic IBTC, FBNH, and Livestock Feeds, among others, which impacted positively on Year-To-Date gain, raising it to 1.10%. Market capitalization was up by N146.58bn YTD, representing a 0.84% growth from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Consumer and Industrial goods closed lower by 1.00% and 0.57% respectively, while the NGX Banking led the advancers after gaining 0.75%, followed by Insurance with 0.44%.

Market breadth was at par, as gainers were equal to losers in the ratio of 17:17, while transactions in volume and value terms were down, after investors exchanged 191.31m shares worth N2.59bn, from the previous day’s 331.06m units valued at N2.92bn. Volume was driven by trades in FBNH, Ecobank Transnational Incorporated, Chams, Zenith Bank, and GTCO.

NEM Insurance and Champion Breweries were the best performing, gaining 9.95% and 9.52% to close at N2.10 and N2.30 per share respectively on market sentiments and expected Q3 earnings report. On the flip side, Sovereign Trust Insurance and Nigerian Breweries lost 8.33% and 6.06% respectively, closing at N0.22 and N46.50per share purely on profit taking and market forces.

Market Outlook

We expect a mixed trend as investors take advantage of the pullback to reposition for Q3 earnings season and year end. Just as candlestick formation at the Monday trading revealed a change of trend on a low volume. It is equally noteworthy that this pullback is for accumulate more positions ahead of the earnings reporting season. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury bill auction were 91 and 182 days tenor rate remain unchanged and 364 days slightly up by 30points to 7.50% for a whole one year ahead of last quarter and year end repositioning of portfolios. Also, investors are still observing the interplay of forces in the FX market as the CBN postpones the launch of the new digital currency platform. The day’s low volume suggests that institutional investors and others are not making move yet in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil prices rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605