Market Update for the Week Ended May 14 and Outlook for May 17-21
It was a bullish outing for the three-day trading week that ended on Friday, following the public holiday declared by the Federal Government to celebrate the Eid al-Fitr, which marks the end of month of Ramadan.
During the period, the Nigerian Exchange (NGX) ignored the increasing spate of insecurity in the country, as well as the rising yields in the fixed market to maintain a positive trend and sentiments. These halted previous week’s loss position amidst buying interests in undervalued stocks that recently posted better-than-expected Q1 numbers, and ahead of economic data and half-year earnings season.
Meanwhile, all eyes are on the April Consumer Price Index, being expected from the National Bureau of Statistics; as well as the outcome of next week’s Central Bank of Nigeria (CBN) Monetary Policy Committee meeting.
Such economic data and outcome of the MPC meeting will, expectedly, give direction for the rest of Q2 and the second half of the year, while the world keeps its gaze on impact of the vaccine breakthroughs as they spread to emerging market. We note the increase in new strands of the coronavirus as it spreads, while not affecting oil prices in the international market.
The improving earnings performance of many companies on the exchange and thechanging price and volume patterns at this point indicates strong support for the ongoing market recovery.
With the market oscillating to create opportunities for accumulation before another markup, players should look at the market with the three master keys for positioning in the right stocks ahead of March year-end financials and the economic data of the 2021 second half.
The first is market timing which looks at the overbought and oversold state of the market, or individual stocks to show when the big or smart money is heading, followed by stock selection, watching the volume push to identify the big money moves. This is because retail investors hardly move stock prices, leaving such to institutional players like Pension Fund Administrators, fund managers and others. The aggressive entry into the market or stocks by smart money will lead to price jump, so you have to watch key average levels to spot their movement, by looking at the 200-Day Moving Average, 50 and 20–DMA. For a better understanding of how to profit in any market cycle, whether bear or bull market, get the comprehensive stock market trading videos.
The third key is your Trade Plan, which involves setting investment goals and targets, putting entry and exit strategies in place, while your support and resistance levels will help you manage profit and risks.
Movement Of NSEASI
The NGX All-Share Index opened the week on a positive note gaining 0.28%, an extension of Friday’s buying sentiments, a trend that was sustained on Tuesday, when the composite index notched 0.18%. The positive sentiment continued on Friday when the index closed 0.26% higher as the market resumed after the holidays, bringing the week’s total gain to 0.72%, compared to previous week 1.72% loss.
In all, the benchmark index gained 283.14 basis points over the 39,198.75bps it opened, after touching intra-week high of 39,494.68bps, and lows of 39,198.75bps, before closing the week at 39,481.89 on buying interests and positive sentiments. During the period also, market capitalization rose by N150bn, closing at N20.585tr, from the previous week’s N20.43tr, also representing a 0.72% value gain.
During the short trading week, stocks selling below one naira and medium cap stocks topped the gainers chart, as investors continued repositioning their portfolios on the strength of Q1 earnings performance and expectation of a mixed economic data. During the week also, prices of Okomu Oil and Wema Bank were adjust6ed for the N7.00 and N0.04 dividends recommended by their directors respectively. Also, trading and price actions revealed the presence of buyers in all the sectors to support the bull-run.
The week recorded positive breadth as advancers outnumbered decliners in the ratio of 33:19 on buying sentiments and relatively weak momentum, just as Money Flow Index turned up to read 30.18bps, from the previous week’s 24.21 points. During the week also, Airtel Africa and C&I Leasing released their full-year corporate actions of 2.5Cent and 5 kobo dividend respectively to investors whose names are in their registers before the close of business on June 25 and June 11, 2021 respectively.
NSEASI WEEKLY CHART MOVEMENT
The NGX index action for the period under review reversed up to resist further decline in the midst of the ongoing portfolio repositioning and buying sentiment on the strength of Q1 financials that beat market expectations, and high upside potentials.
Going forward, all eyes are on the April inflation report, Purchasing Managers’ Index and Q1 GDP 2021 in the face of rising fixed income yields. There is also an increased volatility rate in the midst of changing price patterns and trading environment, while investors continue accumulating positions in undervalued and growth stocks.
Also, we note that the index’s candlestick formation on a weekly chart is yet to give a signal or direction, so we have to wait for confirmation during Monday’s session, depending on market forces in the new week. We observe that volume traded was low, as the daily timeframe chart signals a top that needs confirmation also on Monday.
Nevertheless, we see the market maintaining a mixed trend, especially as investors await key economic data and the March year-end corporate earnings reports, just as the index continues trading above the 39,000 basis points.
The strong resistance level to watch out for on the NGX is within the 39,572.45bps and 39,884.46bps, and a breakdown of these levels will attract new positioning by traders and support stronger recovery. This is happening at a time crude oil is approaching the $70 per barrel level at the international market, while the Covid-19 vaccination is on a high gear at the global and domestic levels, despite few climates suffering the second wave hit of Covid-19. As positive economic data from US and China support oil prices.
However, we envisage a mixed outlook for the rest of Q2, while not ruling out profit booking and repositioning of portfolios especially after the market recorded a sharp uptrend in 2020.
Our expectation of a mixed outlook is hinged on such factors as the possible impact of corporate earnings, ongoing vaccination, mismatch of monetary and fiscal policies, implementation of the 2021 capital budget, as well as implications of oil prices oscillating on the nation’s revenue. We note too, the impact of the Money Flow Index and MACD are bearish on a weekly chart, but bullish on daily time frame.
Bullish Sectoral Indices
Performance indexes across the sectors were up, with the NGX Insurance topping the advancers to close 3.97% higher, followed by Banking, Industrial Goods, Consumer Goods and Oil/Gas with 3.72%, 0.78%0.32% and 0.10% higher respectively.
The general market’s outlook remains mixed in the short and long-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.
Transactions in volume and value terms were down as players exchanged 840.55m shares worth N9.56bn, compared to the previous week’s 1.42bn units valued at N15.92bn. Volume was driven by trades in Financial Services, ICT and Conglomerates sectors, particularly Access Bank, Zenith Bank, Etranzact and Transcorp.
Consolidated Hallmark Insurance and Associated Bus Company were the best performing stocks, after gaining 25.64% and 19.35% respectively, closing at N0.49 and N0.37 each on impressive Q1 numbers and market forces. On the other hand, Academy Press and Chams lost 10% and 9.09% respectively, at N0.36and N0.20 per share on market forces and profit booking
We expect the mixed trend to continue as portfolio rebalancing, profit taking and outcome of next week’s MPC meeting, just as the market expects economic data like April Inflation, Purchasing Managers’ Index and Q1 GDP in the face of rising fixed income market yields. Also, any pullback at this point offers new entry opportunities for traders and investors to reposition in value and underpriced growth stocks, while companies with March year-end accounts release their unaudited and audited full-year numbers to support recovery in the new month. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the oscillating oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q1 earnings reports, until the next MPC meeting in May.
Also, 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 new year.
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