Positive Sentiments May Continue On Bearish Divergence, As Investors Seek Defensive Stocks

Market Update for June 21

The bulls sustained its momentum on the Nigerian Exchange at the midweek, as discerning investors cherry-picked value stocks that are yet to move, reassessing the upside potentials of the stocks making new 52-week highs in the midst of profit taking and positive sentiment for the ongoing economic and financial sector reforms of the new administration. Meanwhile, the market is awaiting further guidelines, strategies and agenda to achieve all promised as part of the Renewed Hope Agenda of the current government.
The prevailing buying interest and bullish sentiment pushed the benchmark NGX All-Share index higher on a less than average traded volume and positive market breadth thereby extending the bull-run for three successive sessions ahead of end of the Q2 window dressing by portfolio managers, and the release of March year-end audited financials.
The NGX remains above the 59,000 basis points mark, positive sentiment and buying interests during the session, with the index still at its 16-year market high on above average traded volume. In the process, many stocks are hitting new 52-week highs on strong buying sentiments and expected fall in interest rates as the government looks to reform monetary policy after the recent unification the foreign exchange rates.
Some of the major sectors of the market were hit by profit-taking, while others witnessed increased buying interests on an increased inflow of funds as players took position in low, medium and high cap stocks, even as dividend yields of many companies become lower yet, ahead of the Q2 earnings reporting season. This is as more quoted companies notify the exchange and investing public of their closed periods and board meeting dates to approve the half-year financials. Also, all eyes are on audited financials of March year-end companies.
The market is currently trading above its 100-Day Simple Moving Average and 200DMA on the daily and weekly chart, while heading to the 60,442bps level again, with a bearish divergence between the momentum and the index action, which calls for cautious trading. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when the market’s Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued at midweek, as it pulls back slightly to trade at $76.84per barrel in the midst of Fed chairman flagging the potential of rate hike and weak China economic recovery despite the recent rate cut, even as the Russia-Ukraine war remain a concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Midweek’s trading opened in the upside and was sustained throughout the session, despite oscillating on positon taking and selloffs, a situation that pushed the NGX All-Share Index to an intraday high of 59,399.54bps, from its lows of 59,097.09ps, before closing above it opening figure at 59,323.95 point.
Market technicals were positive and mixed with a higher volume traded 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 75% buy position and 25% sell volume. The total transaction volume index stood at 1.01 points, just as impetus behind the day’s performance was strong, with Money Flow Index reads 83.22pts, from the previous day’s 83.18pts, indicating that funds entered the market.
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Index and Market Caps
At the end of trading, the benchmark NGXASI gained 207.18bps, closing at 59,323.95bps, from its 59,11o.02bps opening level, representing a 0.36% growth. Market capitalization gained N116.49bn to N32.30tr, from the previous day’s N32.19tr, which also represented a 0.36% appreciation in value.
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The day’s upturn was driven by accumulation in the shares of BUA Cement, Stanbic IBTC Conoil, MRS Oil. Lafarge, Eterna, Mansard, Honeywell and FTN Cocoa, among others. This impacted positively on Year-To-Date gain, which increased to 15.75%, while Market Capitalization YTD gain went up to N4.62tr, representing 15.73% above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Banking and Consumer closed lower by 0.6% and 0.11% respectively, while NGX Insurance led the advancers, after gaining 1.93%, followed by NGX Industrial goods and Energy with 1.84% each.
Market breadth was positive as gainers outpaced losers in the ratio of 42:25, while activities in volume and value were mixed after players exchanged 642,03m shares worth N6.11bn, driven by trades in, Universal Insurance, GTCO, Japaul Gold. UBA and Accesscorp.
Afromedia and Etranzact were the best performing stocks, gaining 10% and 9.91% respectively, closing at N0.22 and N5.88 per share respectively on positive market forces and sentiments. On the flip side, Jaiz Bank and Meyer lost 10% and 9.88% respectively, closing at N1.53 and N2.19 per share, purely on profit taking and selloffs

Market Outlook
We expect positive sentiments to continue, but on a bearish divergence, as players target defensive stocks on improved investors sentiments to realign their portfolios, just as more policy pronouncements and appointments to give direction. Also, Q2 earnings reporting season draws closer to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and expected March year end audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit. Also looking at the trends and events across the globe and domestically.

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