Positive Sentiments May Linger, As Investors Digest Latest Inflation Data, Bet On MPC Outcome

Market Update for January 16

Stock prices on the Nigerian Exchange closed lower Monday to start the week in the midst of continued volatility and strong momentum, as profit taking activities hit banking stocks and other blue chip companies, despite year on year December inflation slowing down for the first time in 11 months to 21.34% from 21.47% in November, despite being the peak of festive period of high pressure on prices.

However, the Month-on-Month (MoM) headline inflation increased by 1.71% from 1.39% recorded the month before, due to a notable increase in consumer demand experienced during the festive season and cost of production, especially cost energy, transportation and others.

The NGX index’s action yielded to the topping chart pattern as revealed by candlestick formation at the end of trading last week that signaled price correction or pullback, which resulted in selling sentiment after 9 weeks of uptrend and bull transition.

Regardless of the profit booking, however, investors positioning for the 2022 unaudited and audited financials will reverse the pullback, a situation that would expectedly support an uptrend, given the slowdown in inflation and the already declining rates in the fixed income market. These are already signaling the possibility of the Monetary Policy Committee voting to retain the benchmark Monetary Policy Rate (MPR) unchanged, or a 25 basis point raise at its meeting next week. Also, we note that more companies continue to notify the exchange of its closed period and board meetings.

Position taking was noticed in some major sectors of the market in the face of profit taking, which may continue to support the recovery as revealed in the medium and long term trend which remain intact, therefore signaling the continuation of this recovery in the month of January. This is due to the expected full-year corporate actions that would support price, notwithstanding uncertainties associated with the coming 2023 general elections, and a possible post-election rally, all things being equal.

The selling pressure in some equities pulled the market down slightly, as it traded above the 200-Day Moving Average on the daily and weekly time frame in the midst of volatile and mixed sentiments. This was driven by the continued bargain hunting activities of positioning in value stocks at their current prices ahead of the NGX’s historical peak of earnings reporting season that comes with more liquidity, buying interest, earnings surprises and disappointments. Also, rates and yields in the fixed income market have been on the decline across all tenor as seen in the last TB primary market auction offer for 2022.

Technically, the NGX index action slipped to the distribution phase in the face of a topping chart and bullish V-shape pattern that supports reversal or continuation of trend on a daily and weekly time frame, as the convergence between the index action and MACD at the end of Monday trading on a dally chart supports reversal of trend, due selloffs that hit some banking, industrial and consumer goods stocks.  let us keep our gaze on market forces and money flow.

Momentum indicators appear to remain stronger, as revealed by the ADX reading 67.26, just as, RSI and Money Flow Index were mixed to read 76.54 and 83.21 points against the previous session 79.56 and 82.79 points respectively. Volume trading pattern suggests the gradual return of many players who had been seating on the fence before now, including institutional investors holding cash to confirm the primary’s market direction, especially given the anticipated financial market and economic reset in 2023 that comes with huge opportunities to create wealth for smart investors and traders.

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Oil price oscillation continued, as it trades at $84.71 per barrel on increasing fear of global recession in the midst of China reopening its borders and India demand for Russia oil hit 33 times record high. Just as the geopolitical tension, high interest rate and inflation across the globe continue to threaten the world. Also, supply tightened due to the Russia-Ukraine war that has lingered so far. The up and down movement of oil price also continues to drive volatility across markets.

Monday’s trading opened slightly in the upside before pulling back to oscillate for the rest of the session due to profit taking in some blue chip stocks and position taking in medium and low cap companies, a situation that pushed the NGX’s index to an intraday low of 52,348.82 basis points from its highs of 52,519.61bps before closing slightly below its opening level at 52,348.32bps.

Market technicals were negative and mixed, with higher volume of trade compared to the previous session in the midst of breadth favoring the bears on selling sentiment as revealed by Investdata’s Sentiments Report showing 0% buy position and 100% sell volume. The total transaction volume index stood at 0.99 points, just as momentum behind the day’s performance was strong as Money Flow Index looked up at 83.21pts, from the previous day’s 82.79pts, indicating that funds entered the market, despite the down market.

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Index and Market Caps

The benchmark NGX All-Share index, at the end of the day’s trading, slide  by 163.66 basis points, closing at 52,348.82bps after opening at 52,512.48bps, representing a 0.31% drop, just as market capitalization fell by N89.14bn closing at N28.51tr from the previous day’s N28.60tr, which also represented a 0.31% value loss.

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Meanwhile, the session downturn was driven by profit taking in the shares of UBA, Accesscorp, Lafarge Africa, Zenith Bank, Livestock Feeds Honeywell Flour Mills, Ecobank Transnational Incorporated and Prestige Assurance, among others, which impacted negatively on Year-To-Date gain to 2.14%. Market capitalization YTD gain stood at N621bn, representing 2.14% above its opening level for the year.

Mixed Sector Indices

Sectorial performance indexes for the session closed mixed, with the NGX Insurance and Energy closing 0.39% and 0.09% high respectively, while the NGX Banking led the decliners after losing 3.39%, followed by Industrial and Consumer goods with 0.18% and 0.08% respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 22:20; whereas activities in volume and value were up, after stockbrokers traded 221.85m shares worth N3.25bn. Volume was driven by trades in UBA, GTCO, Transcorp, FBNH and Zenith Bank.

Presco and Wapic Insurance were the best performing stocks, after gaining 9.67% and 9.52% respectively, closing at N150.80 and N0.46 per share respectively on market forces and earnings expectation.  On the flip side, Prestige Assurance and Livestock lost 8.70% and 7.69% respectively, closing at N0.42 and N1.20per share, purely on selloffs and profit taking.

Market Outlook

We expect positive sentiments and mixed trend to continue as market players digest the December CPI  and  bargain hunting  ahead of MPC meeting  and volatility in the face of  Q4 earnings reports and election uncertainty, as pullback at this point 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 domestically.

Crucial Announcement

As the new year begins, you need to get started with activities that will help you in achieving your goals for the year. To this end, I must tell you that events and activities that happened in 2022 will shape 2023.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605