Oscillation May Linger, As Investors Portfolio Rebalancing Await More Corporate Actions

Market Update for February 7
Profit-taking lingered on the Nigerian Exchange as trading for the week trading started on negative outing due with traders cashing out their profit from the recent rally in highly priced stocks and blue-chip companies, dragging the key performance index lower on a less than average traded volume and flat market breadth.

Despite the seeming increase in volatility during this earnings reporting season, this oscillation is yet lower than what the market witnessed during the previous year-end’s earnings season volatility. However, with the volatility and high momentum in the market, many stocks seem highly priced and yet undervalued as guide to investors on where to pitch their tents ahead of the release of more audited financials and dividend declaration, just as most unaudited numbers released to market so far have been healthy, beating market expectations.

This should give us an insight into what the final dividends of these companies will look like, especially those expected to grow their payouts, judging by the Earnings Per Share and established dividend policies.
Technically, the NGX’s index action is on sideways trending after pulling back marginally for two consecutive sessions, while remaining above the 47,000 mark, despite the tactical change in trend, the two last candlestick formations are yet to confirm direction as of close of Monday’s trading.

The selling sentiment on a light traded volume, signals the activities of retail investors, rather than of smart money as the market awaits a trigger to breakout or down at this level. Trade metrics revealed the level of indecision, as investors wait to see corporate actions hit the market, amid profit booking in Energy, Insurance and Consumer Goods stocks, after big names in these sectors suffered losses.

Monday’s candlestick formation confirms a change in market characteristics, as investors look to market forces at Tuesday’s session to give a clear direction, with NGX index trading above the 20, 50 and 200-Day Moving Averages, while momentum indicators were mixed as the ADX read 51.52, RSI closed above 50 at 75.83 and Money Flow Index is looking down at 74.47 points on the daily time frame.

The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as direction of the fixed income market yields remains unclear, in the midst of NTB primary market auction slated for midweek ahead of consumer price index for January 2022.

Trading on Monday opened slightly on the downside before oscillating to sustain the downtrend on selloffs across all stocks classifications, pushing the index to an intraday low of 47,198.42 basis points, from its highs of 47,324.09bps. Thereafter, the index closed marginally below its opening level at 47.203.39bps.

Market technicals were mixed and weak, as volume traded was higher than the previous day’s in the midst of a flat breadth on selling pressure as revealed by Investdata’s Sentiment Report showing 96% sell volume and 4% buy position. The total transaction volume index stood at 0.87 points, just as energy behind the day’s performance remained strong. Money Flow Index dropped to 74.47 points, from the previous day’s 80.78 points, indicating that funds left the market.  

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Index and Mkt Cap Movement 
The NGX All-Share Index, at the end of Monday’s trading, slipped by 76.53 basis points to 47,203.39bps, after opening at 47,279.92bps, representing a 0.16% drop. Market capitalization fell by N41.24bn, closing at N25.44tr, from the opening value of N25.48tr, also representing a 0.16% value loss.

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The session’s downturn was driven by selloffs and profit-taking in Seplat Energy, MTN Nigeria, Okomu Oil, Oando, NEM, FBNH, Ecobank Transnational Incorporated, GTCO, PZ and Fidson Healthcare, among others. This impacted mildly on Year-To-Date gain, which dropped to 10.50%. Market capitalization growth stood at N2.84tr YTD, representing a 14.87% rise over the opening level for the year.

Mixed Sector Indices 
Performance indexes across the sectors were mixed, with NGX Banking closed 1.14% higher, while the NGX Oil/Gas led the decliners after losing 1.48%, followed by Insurance and Consumer Goods with 0.84% and 0.43% respectively. Market breadth was at equilibrium as gainers were equal losers in the ratio of 23:23, while activities in volume and value terms improved, after players exchanged 285.48m shares worth N5.13bn, compared to previous day’s 225.69m units valued at N2.39bn. Volume was boosted by trades in GTCO, Transcorp, Fidelity Bank, Nigerian Breweries and FBNH.

It is not known whether the renewed interest in GTCO is related to the announcement that it had concluded the reacquisition of two former subsidiaries- including a Pension Fund Administrator.
Sunu Assurance and SCOA were the best performing stocks during the session after gaining 10% and 9.60% respectively, closing at N0.33 and N1.37 per share on market sentiment and forces.

On the flip side, Okomu Oil and NEM Insurance lost 10% and 9.61% respectively, closing at N127.80 and N3.01 per share, on news of what the board said is a terrorist attack on its plantation, resulting in the selloffs.

Market Outlook
We expect oscillating trend to continue until more audited financials with corporate actions to start to hit the market in the midst of profit taking and portfolio rebalancing, as market players target fundamentally sound and dividend paying stocks in expectation of dividend announcement, as oil price oscillates to trade at $92, which is one factor that also continues to support economic and market fundamentals. Just as inflation remain high at 15.63%.

Also noteworthy is the oil price that remains above $74 projection of IMF at $92 plus, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

As market players digest the quarterly and unaudited 2021 full year results available in the market and what is happenings in fixed income market after the NGX index action pullback slightly to trade above its 50-Day Moving Average on a low sell volume in the face of assets rebalancing and changing pattern in February as market look forward to audited 2021 earnings reports.

The relatively low volume traded in the midst of volatility and recovery moves are creating new buy opportunities on the strength of corporate numbers and economic data. Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet. 

It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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