The ongoing bearish rally is no doubt unprecedented and beyond analysts’ expectation. It has continued, amidst the weak macro-economic variables and political uncertainties in the nation.
It is not unexpected that traders and investors have switched to their caution mode, ahead of earnings season that had commenced earnestly with infinity Trust Mortgage Bank releasing its Q3 numbers last week, making it the earliest filer. More Q3 financials are expected to hit the market from next week, going by the market’s historical release date. Already, many have released their closed period (a time band within which members of the board, management and defined class of stakeholders are barred from trading in the shares) to the market.
Historically, according to Investdata Research, performance of the NSE in the month of October has been unsteady and largely negative since 2005, in terms of monthly returns, regardless of being the most important month for earnings season, as it gives an insight into what shareholders should expected from the major quoted companies at financial year-end.
In the last decade, the negative trend of the NSE composite All-Share Index in the month of October has been driven basically by the strength of corporates numbers released by companies, just as sectoral policies. This is in addition to reforms by regulators, as well as macro-economic indicators like: interest rates, exchange rates, crude oil price and receipts and political stability, among others.
Looking at the chart above, the long- and short-term bear- run is still strong as 7, 14 and 45-Day Moving Averages cross each other above the price to support the market prevailing situation, which reveals low valuation and attractive entry points for trading the earnings season before the actual numbers start hitting the market.
The upside potential to the bearish rally remain but not limited to the following:
 Post-election recovery move, to be driven mainly by full year earnings reports.
 Early positioning by speculators, given the low prices of equities compared to other emerging market
 Return of institutional and foreign investors in the absence of immediate political risk until the next pre-election year, which comes up in 2022.
 Expected improvement in macroeconomic variables and recovery path necessitated by relative stability in exchange rates. This has supported the Naira value and crude oil revenue which is now looking up, despite the oscillating price movement.
 There is also the expected improvement in security to enhance market penetration by companies, while boosting their operations and consequently- bottom-line.
We advise investors to generally remain cautious and accumulate shares of fundamentally strong companies in tranches, especially those with good potentials and impressive dividend payout history. These companies are those currently trading below their intrinsic values and have strong upside potentials in the near-medium to long term horizon. We expect that equities to recover from a bearish rally on good dividend yields and positive investors sentiments.

Ambrose Omordion
CRO|Investdata Consulting Ltd
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