Positive Sentiment May Linger As Investors Position In Reaction To Q3 Earnings Inflow

Market Update for October 21

Bullish sentiments resurfaced on the Nigerian Exchange Monday to start the week on a positive note, amid buying interests in highly priced stocks and blue chip companies. This pushed the benchmark NGX All-Share index to close higher on an above average traded volume and positive market internals in the midst of impressive corporate earnings reports from Transcorp Hotels, United Bank for Africa and Unilever Nigeria. The market reacted positively to these numbers. This sentiment is likely to continue when the market opens on Tuesday.

This rebound was after the index’s action had formed a bullish hammer and double bottom which signaled reversal chart pattern on a less than average traded volume in the face of bearish trend and decline.

As more earnings reports are expected to hit the market, there will be a high possibility of volatility and uncertainty due to the prevailing high interest rates and yields in the fixed income market. This would make it difficult for players to pick undervalued stocks, which is why there is the resort to relative strength index (RSI) a real technical tool that had been tried and tested in identifying oversold stocks set for a rebound. As market players trade the ongoing earnings season, it is time to combine resistance and support levels to catch the value areas of stocks with low RSI values that suggest bullish reversal underway.

Meanwhile, more corporate earnings reports are expected in the midst of NGX rebound, portfolio rebalancing and sector rotation which have created opportunities for buying into value at a time some sectors and industries performance are being influenced by policies of the government and various industry regulators. There are also the effects of capacity building to capture more market share among these companies, a situation that supported their numbers and reflected in their top and bottom lines in the previous quarters. Similarly, we cannot underestimate the capacity of earnings news and other factors that drive strength or weakness of any market are the different dynamics of stock markets technically which require effective strategies to navigate and follow trends profitably.

In the current phase of accumulation and markup on the NGX, discerning investors and smart traders are repositioning their portfolios along sectors and companies with potentials to release positive numbers on the strength of their earnings power ahead of their September quarterly earnings reports. Also, seasonal trends are likely to repeat themselves in this last quarter of the year which comes with seasonality and sentiment that makes it very important to market players across the globe. This is especially as retracement from strong support level of 96,568.52 basis points and 96,684.90bps after forming a bottoming tail and uptrend candles. This created the perfect setup for high probability swing trade to catch on ahead of financial news that will impact prices.

Aradel Holdings notified the NGX of its closed periods and board meeting dates to approve the Q3 scorecards this month, while others like United Capital, Votafoam and other informed the market of insiders trading and dealing. However, the low valuation and high dividend yield of some companies due to profit taking and pullbacks are creating opportunities for new entrants who understand the big picture and market dynamics at this season.

The NGX index’s action trades above the T-line and two moving averages of 50-EMA and 50-SMA, this indicate buying sentiment in the midst of changing market fundamentals and technicals. We note that the economic reforms of the government, measured by the outpouring of fiscal and monetary policies are yet to put the nation’s economy on the path of recovery. There are also issues with the implementation style amid the oscillating oil production output even as the Naira continues to depreciate at a time that oil is trading below $75 per barrel at the international market.

Technically, the NGX is recovering in the midst of positive momentum and increased transacted volume that signaled position taking, expecting corporate numbers to give a clear direction. Just as candlestick formation and momentum indicators had revealed somewhat returning of strength to the market. As ADX is looking down at 16.30, while RSI and Money Flow Index were up to read 59.42 and 38.11 points against the previous session 53.05 and 27.90 points respectively. Market players should watch this current trend and trade wisely in the face of funds entering the market on buying sentiment in some sectors and profit taking in others. Also, trading volume pattern continued to oscillates, suggesting buying interest and selloffs in the market amid players looking forward to more earnings reports and policy direction of economic managers.

To navigate the rest of this quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil prices on  Monday inched up to continue its oscillation, trading at $74.53 per barrel in the midst of  Chinese banks adopting extra stimulus measure to boost economic growth by further cutting rates  and geopolitical tension over supply shock in the wake of continued conflict in the Middle East. Also, demand outlook in the midst of rate cuts by the major central banks of the world. The rising geopolitical uncertainties across many economies remains a threat to the global economy and energy consumption. This trend may likely continue for the rest of 2024, while the up and down movement continues to drive volatility, even as the raging war between Ukraine and Russia continues to influence global oil supply and demand.

Meanwhile, Monday’s trading opened in the upside and was sustained throughout the session, despite oscillating on positioning in highly capitalized stocks and others, while selloffs hit some other stocks. This situation pushed the NGX’s index to an intra-day high of 98,932.46bps from its lows of 97,765.03bps, before closing above its opening level at 98,694.80bps.

Market technicals for the session were positive and strong with higher volume when 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 80% buy position and 20% sell volume. The total transaction volume index stood at 0.92 points, just as energy behind the day’s performance was weak as Money Flow Index inched up to read 38.11pts, from the previous day’s 27.90pts, indicating that funds entered the market.

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Index and Market Caps

The composite NGX All-Share Index gained 624.52bps on Monday, closing at 98,694.80 basis points after opening at 98,070.23bps, representing a 0.64% growth. Market capitalization rose by N378.43bn, closing at N59.80tr from the previous day’s N59.43tr, representing a 0.64% 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 oversold range has increased as market correction and volatility call for intelligent  trading 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 upurn was driven by position taking in the shares of Seplat, Oando, UBA, GTCO, Nestle, Zenith Bank, PZ and Champion Breweries among others. This impact positively on Year-To-Date gain which increased to 31.99%, while Market capitalization was up to N15.68tr, representing 46.16% above its opening level for the year.

Bullish Sector Indices

Sectoral performance indexes were up, except for the NGX Industrial Goods that closed slightly lower by 0.04%, while the NGX Oil/Gas led advancers after gaining 4.43%, followed by Insurance, Banking and Consumer goods with 1.07%, 0.96% and 0.23% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 31:17, while activties in volume and value were up after investors exchanged 405.02 million shares worth N27.57bn. Volume was driven by trades in UBA, StertlingNG, Accesscorp, NB and FCMB.

Daar Communication and Ikeja Hotel were the best performing stocks, gaining 10% each, closing at N0.66 and N7.70 per share respectively on the back of market forces and sentiments respectively. On the flip side, Regency Insurance and NSLTech lost 8.20% and 6.45% respectively, closing at N0.59 and N0.58per share, purely on selloffs and profit taking.

Market Outlook

We expect positive sentiment and mixed trend to continue on positioning and reaction to impressive numbers, ahead of more Q3 earnings reports. Also, sector rotation and portfolio rebalancing continues in the market, with investors taking advantage of pullbacks to buy into value.

This is amid the volatility and pullbacks that add more strength to upside potential. Consequently, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

 

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

08028164085