Positive Sentiment Lingers Amid Slowdown In Gains On Profit Taking, Portfolio Realignments

Market Update for January   17

Transactions on the Nigerian Exchange closed on positive note at the midweek, as the bull ascendancy persists in the face of profit taking and high volatility to kick-off the earnings reporting season with the impressive scorecard from Infinity Trust Mortgage Bank that grew its top and bottom lines by 38% and 60% respectively. This translated to earnings per share of 23 kobo, from the 14 kobo posted in 2022 from a company that has been consistent released its numbers as and when due. This earnings will enable investors plan their trade and investment, as an early filer on the exchange.

Despite the seeming profit booking on the NGX, the All-Share index closed higher on buying sentiments and the back of funds flowing into large cap stocks, blue chip companies and others, that reflected portfolio repositioning by market players in the new year as they hedge against the galloping inflation timing the dividend season. There is also the impact of the mixed outlook in the fixed income market as rates continued to fluctuate in the face of an unclear direction of the Central Bank of Nigeria’s monetary policy while managing an all time high inflation. We also note the high interest rate that is persisting in the struggling Nigerian economy where macroeconomic indices are weak and worse, due to the low and weak purchasing power,  increased energy prices, insecurity challenges across the nation, among other factors. The impact of imported inflation due to the sustained depreciation of the Naira cannot also be overlooked, despite the continued settlement of FX transaction backlogs by CBN.

Nevertheless, at the current state of the market, market players should play with caution and know when to take profit, even as the global economy outlook remains mixed in the face of rising geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession among others that will continue to influence investment decisions, while driving volatility, especially as inflation is raising up its ugly head again in the mature economies, the US Dollar is becoming stronger and the possibility of a rate cut is shaking due to the unfolding events across the globe. Another cycle of rate hike is bound to pile pressure on the stock market despite the earnings season that is around the corner all of the world.

The exchange witnessed another milestone at the midweek, as the benchmark index crossed the 90,000 basis points psychological line to test 90,234.77bps on market upbeat that left the index’s action above the T-line on a strong momentum in the midst of very high traded volume to stay above the short and long-term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued even as the earnings season kicked off. Meanwhile, Nigerian Breweries and others notified the NGX of their board meetings and closed period for the 2023 full-year financials.  Also, insiders dealing notifications was received from Nahco,  Accesscorp proposed acquisition of stake in Finance Trust Bank ltd and Eterna informed  the market of its major distributor of Dangote Petroleum among others to guide  investing public.

As mentioned in our update, the gaining momentum slowdown, just as it revealed by candlestick formation at the end of the trading session to extend the markup phase which is likely continuation but needs confirmation as trading opens this morning. Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action has remained on overbought, which is also a topping chart pattern.

The momentum indicators still show strength, despite the overbought state of the market, as the ADX read 72.64, while RSI and Money Flow Index are looking up to 91.67 and 87.28 points against the previous session 90.33 and 82.90 points respectively. This is good as demand for stocks are high but it should be, also a concern for investors and smart traders as they trade with caution. The trading volume pattern suggests more new entrance into the market, as institutional investors increase stakes in equity, in the midst of others investment windows returns remaining below inflation and real negative.  Also, the anticipated financial market and economic reset in 2024, comes with challenges and huge opportunities to create wealth for smart investors and traders.

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Oil price oscillation continued, as it retraced up to trade at $78.32 per barrel in the midst of surprise building of inventories that weighed on prices in the face of traders assessing the effect of tensions, stronger dollar and tempered expectation of potential US interest rate cuts in the face of Middle East conflicts escalating, while the war in Ukraine and Russia is ongoing to influence the global economic outlook. The geopolitical tension across the globe is a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued trade below $80. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

At the midweek’s trading opened on the upside and was sustained throughout the session, despite oscillating on buying interests in manufacturing and profit taking in banking stocks, among others, a situation that pushed the NGX’s index across 89,000 and 90,000 marks to an intraday high of 90,234.77bps from its lows of 87,971.10bps before closing  above its opening figure at 90,063.27 bps.

Market technicals were positive and strong as volume of traded was higher, compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 92% buy position and 8% sell volume. The total transaction volume index stood at 1.93 points, just as impetus behind the day’s performance was strong as Money Flow Index looking up at 87.28pts, from the previous day’s 82.90pts, indicating that funds entered the market.

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Index and Market Caps

The NGX All Share Index, at the end of the trading session  gained  2,092.17bps, closing at  90,063.27bps after opening at 87,970.37bps, representing a 2.38% growth, just as market capitalization rose by N1.14tr, closing at N49.28tr from the previous day’s N48.14tr, which also represented a 2.38% appreciation in value.

Attention: If you have not signed up for INVESTDATA’s buy and sell signal setup, don’t delay, because the number of stocks entering their overbought range has just increased to 54 as they rallied to new highs that call for caution and positive chart patterns to be on our watchlist. These stocks have potentials to retrace, considering their earnings prospects and the oscillating moves in an upmarket and weak economy.

To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. Take advantage of this service to buy right and sell right at the current oscillating market in the midst of earnings season, portfolio reshuffling, and repositioning as we await an economic reform policy that can stimulate and re-track the economy to the path of growth and development.

The  upturn was driven by position taking in the shares of   Geregu, Dangote, BUA, Cadbury Nigeria, Transcorp, Guinness, BUA Foods, Wema Bank and UACN, among others. This impacted positively on Year-To-Date gain, ballooning it to 20.45%. Market capitalization YTD gain stood at N5.84tr, representing 20.45% above its opening level for the year.

Bullish Sector Indices

All sectorial performance indexes for the session were in green, save for the NGX Banking that closed in the red with 3.26%, while NGX Industrial goods index led the advancers after gaining 8.76%, followed by Insurance, Consumer goods and Energy with 3.68%, 1.92% and 0.45% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 47:35, whereas activities in volume and value were up, after players exchanged 1.24billion shares worth N16.27bn. Volume was driven by trades in SterlingNG, Japaul Gold, Transcorp, Jaiz Bank and Unity Bank.

Aiico  and Wema Bank were the best performing stocks, gaining 10% each, closing at N1.54 and N11.66per share respectively on market forces and expectation of earnings.  On the flip side, RT Boriscoe and Dangote Sugar lost 10% each, closing at N0.81 and N73.30per share, purely on profit taking.

Market Outlook

We expect positive sentiment and slowdown in gains to continue on profit taking, as bargain hunting and portfolio realignments persist ahead of unaudited Q4 2023 numbers in the face of volatility and expected MPC meeting, as pullback at this point will add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and back home.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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