Positive Sentiment May Slowdown Amid Profit Taking, Bargain Hunting, Ahead Of Q4 2023 Earnings

Market Update for January   16

The bull rampage on the Nigerian Exchange continued Tuesday on a higher magnitude, driven by heightened interests in blue chip companies as market players hedged against the rising inflation, ahead of the full-year earnings reporting season and in the midst of unclear direction from the monetary and fiscal authorities to checkmate this the challenge called inflation that is eating up Nigerians. This is made worse by the prevailing mixed outlook for fixed income market instruments as rates continue to oscillates and disconnect from the benchmark monetary policy rate amid the hyperinflation environment that will likely linger due to increased energy prices, insecurity challenges in major food producing states of the country, among other factors like imported inflation due to the sustained fall in the value of the Naira.

All the same, at the current state of the market, investors and traders 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 resurfacing, the US Dollar is becoming stronger and the possibility of a rate cut 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 composite NGX All-Share Index made yet another new historic milestone, crossing the 87,000 basis points psychological line when it closed at 88,009.79bps on sustained investors anticipation. This left the index’s action above the T-line on a strong momentum in the midst of high volatility as it traded above the short and long-term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued even as earnings and the dividend season draws closer with the Q4 unaudited reports hitting the market any moment from now. Meanwhile, Airtel Africa, AXA Mansard, NPF Microfinance and others notified the NGX of their board meetings and closed period for the 2023 full-year financials.  Also, insiders dealing notifications were received from Vitafoam, and The Initiates Plc, among others as a guide to the investing public. There are also the January effects and other factors associated with the increasing economic headwinds.

The candlestick formation at the end of the trading session revealed extension of markup phase and likely continuation of uptrend that 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 energy behind Tuesday’s rally was strengthened as revealed by momentum indicators, despite the overbought state of the market, as the ADX cross 70 points to read 70.89, while RSI and Money Flow Index are looking up to 90.33 and 82.90 points against the previous session 87.31 and 81.72 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 again fell on Tuesday, trading at $77.81 per barrel as traders assess 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.

Tuesday’s trading started in the green and was sustained for the rest of the session, on buying interests in manufacturing and financial services stocks, among others, a situation that pushed the NGX’s index across 85,000, 86,000 and 87,000 marks to an intraday high of 88,009.89bps from its lows of 84,640.89bps before closing sharply above its opening level at 87,970.37 bps.

Market technicals were positive and strong, as volume of trade 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 99% buy position and 1% sell volume. The total transaction volume index stood at 1.70points, just as impetus behind the day’s performance was strong as Money Flow Index looking up at 82.90pts, from the previous day’s 81.72pts, indicating that funds entered the market.

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Index and Market Caps

At the end of Tuesday’s session, the NGXASI gained 3,329.48bps, closing at 87,970.37bps after opening at 84,640.89bps, representing a 3.93% growth, just as market capitalization rose by N1.82tr, closing at N48.14tr from the previous day’s N46.32tr, which also represented a 3.92% value gain.

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Meanwhile, the upturn was driven by demand for the shares of cement markers- Dangote, BUA, Lafarge Africa, as well as Cadbury Nigeria, Dangote Sugar, Transcorp, as well as financial services providers- GTCO, Zenith Bank, UBA, Ecobank Transnatinal Incorporated, Accescorp, Wema Bank, Unity Bank, SterlingNG and Conoil Plc, among others. This impacted positively on Year-To-Date gain, ballooning it to 13.20%. Market capitalization YTD gain stood at N5.84tr, representing 17.65% above its opening level for the year.

Bullish Sector Indices

All sectorial performance indexes for the session closed higher, led by NGX Industrial goods index after gaining 9.72%, followed by Insurance, Banking, Consumer goods and Energy with 5.80%, 4.35%, 2.97% and 0.11% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 75:9, whereas transactions in volume and value were up, after players exchanged 1.07 billion shares worth N15.77bn. Volume was driven by trades in Jaiz Bank, Aiico, FCMB, SterlingNG and Transcorp.

Dangote Sugar and Transcorp were the best performing stocks, gaining 10% each, closing at N81.40 and N15.95per share respectively on acquisition news and expectation of earnings.  On the flip side, Royal Exchange Insurance and Multiverse lost 8.16% and 6.59% respectively, closing at N0.90 and N17.00per share, purely on profit taking.

Market Outlook

We expect positive sentiment and slowdown in gains 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




Tel: 08028164085, 08179547605