Positive Sentiments, Mixed Trend May Linger On Profit Taking, Reactions To Earnings, Amid Volatility

Market Update for January   24

The bull dominance on the Nigerian Exchange was strengthened at the midweek on increased buying momentum across low, medium and large cap stocks that impacted the market positively as it achieved another historic milestone, surpassing the 100,000 basis points psychological line.

Specifically, the composite NGX All-Share index hit an all-time high of 101,571.10bps on low traded volume but positive market breadth which reflected the renewed positioning after sessions of profit taking in the midst of volatility and the ongoing earnings reporting season. Already, all eyes are on the big names, and particularly some banks that usually release their unaudited accounts for their numbers expected to offer more insights into market valuation and fundamental analysis as prices are recovering from pullback.

However, the outcome of Wednesday’s Treasury Bills’ auction boosted the repositioning witnessed at the close of the session, as stock prices soared while yields inched up in the midst of the hyper-inflationary environment, and ahead of the dividend season which would coincide with the Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN) slated for end of February. The all-important meeting will be holding after six months of leaving the benchmark Monetary Policy rates unchanged at 18.75% since July 2023.

TB rates recovered mildly from 2.44%,4.22% and 8.40% in the previous auction to 5%, 7.15% and 11.54% for the 91, 182 and 365-day instruments respectively. Notwithstanding the recovery in rates, the equity market remains a better investment option. The fixed income rates and yields have continued to oscillate, while the NGX year-to-date returns now stands at a robust 35.84% in less than 20 trading sessions. This is to be expected, given that more funds flowed into stocks, especially those with impressive earnings that would expectedly support higher dividend payouts.

Buying momentum hit some sectors and individual stocks in the midst of expectation of more corporate earnings, this has triggered sector rotation as profit taking provides buying opportunities for discerning investors and smart traders watching out for the value area of resistances and supports level ahead of these companies’ results hitting the market any moment from now. The NGX has displayed a mixed picture as market players eagerly awaits numbers from the companies, following the optimism that was fueled by the belief that financial sector impressive performance and growth prospect of the economy in the face of rising macroeconomic headwinds will support further rally and revaluation of assets in 2024. But the recent rally in the past few sessions had been driven by large cap companies, as traders cash out profit from the low, medium and blue chip stocks to create new entrance for dividend income players.

Also, all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility.

The NGX index’s action remains above the T-line, as it makes higher highs on daily basis in the midst of high volatility and positive momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility, as more companies notified the NGX and investors of their board meetings and closed period for the 2023 full-year financials, just as Cutix informed the market of insiders dealing.

Meanwhile, midweek’s candlestick formation and chart pattern revealed buying sentiment that may likely continue, despite the seeming profit taking in some tickers, 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 that signal reversal of trend.

The strength behind the trend or the session remained strong as revealed by momentum indicators, despite the overbought state of the market, as the ADX read 80.19, while RSI and Money Flow Index are looking flat to 95.74 and 88.68 points against the previous session 95.04 and 88.93 points respectively. This should be a concern for investors and smart traders as they trade with caution. The trading volume pattern suggests hold and watch disposition of market players, as profit taking continue while investors accumulate more positions in some stocks as others investment windows returns remain below inflation and negative.  Also, the anticipated financial market and economic reset in 2024, comes with huge opportunities to create wealth for smart investors and traders.

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Oil price inched up at midweek, to continue it oscillation as trade  slightly above $80 at $80.33 per barrel in the midst Chinese economic stimulus move and India high GDP growth as rising number of middle class supported economic expansion and demand for oil, despite the ongoing   conflicts in the Middle East and Ukraine, as global economic outlook remained mixed. The rising geopolitical tension across the globe is also a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate around $80. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Wednesday’s trading opened on the upside and was sustained for the rest the session, despite oscillating on buying interests in industrial goods, blue chip companies and profit taking in others. This pushed the NGX’s index to an intraday high of 101,571.10 basis points where it eventually closed for the day, from its lows of 98,613.62bps.

Market technicals were positive and mixed, as volume of trade was lower compared to the previous session in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.67points, just as impetus behind the day’s performance was strong as Money Flow Index looking flat at 88.68pts, from the previous day’s 88.93pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGX All-Share Index on Wednesday gained 2,954.14bps after opening at 98,616.97bps, representing a 3% growth, just as market capitalization rose by N1.61tr, closing at N55.58tr from the previous day’s N53.97tr, which also represented a 3%  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.

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Wednesday’s upturn was driven by position taking in the shares of Dangote Cement, BUA Cement, BUA Foods, Transacorp, Dangote Sugar, PZ, Wapco and Eterna, among others, which impacted positively on Year-To-Date gain of 35.89%. Market capitalization YTD gain stood at N12.42tr, representing 31.89% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes for the session were mixed, as the NGX Insurance  and Banking  indexes closed lower by  1.52% and 0.61% respectively, while NGX Industrial goods  index led the advancers after gaining 7.64%  followed by  Consumer goods and energy  with  4.07% and 0.09% respectively.

Market breadth turned positive as gainers outnumbered losers in the ratio of 35:30, whereas activities in volume and value were down, after players exchanged 488.49m shares worth N8.04bn. Volume was driven by trades in Transcorp, Universal Insurance, Unity Bank, Jaiz Bank and Japaul Gold.

Wapic and BUA Cement were the best performing stocks, gaining 10% and 9.98% respectively, closing at N0.88 and N179.65per share respectively on market forces and sentiments.  On the flip side, NEM Insurance   and Cadbury lost 10% and 9.96% respectively, closing at N7.20 and N23.50per share, purely on profit taking.

Market Outlook

We expect positive sentiments and mixed trend  to continue on profit taking and reactions to earnings reports, as  market players digest these numbers  in the face of  volatility and coming MPC meeting, while 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 domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605