Market Update for October 16
Midweek’s trading on the Nigerian Exchange closed negative as profit taking and selloffs hit highly priced stocks and blue chip companies, weighing on the benchmark NGX All-Share index which closed lower. Transaction volume was low and market breadth flat at a time market players digest the latest inflation report in the midst of continued portfolio rebalancing and sector rotation.
As mentioned in our previous update, market players should watch out midweek trading to confirm the NGX index action breakout of 98,223.04 basis points Tuesday, after forming a triple top chart pattern on a low traded volume in the face contracting breadth, buying sentiments and funds leaving the market as indicated by money flow index. The pullback confirmed a fail breakout that halted three consecutive sessions of bull transition in the midst of impressive Q3 numbers from Champion Breweries and United Capital.
Champion Breweries presented earnings performance that turned positive for the quarter, showing a growth of 67% and 127% respectively in top and bottom lines to N14.02bn, from N8.36bn in 2023 and N21.5m, compared to the previous N77.69m loss in 2023. The marginal profit, therefore translated to earnings per share of 24 kobo each.
United Capital posted fantastic Q3 numbers with gross earnings and profit levels leaping by 61% and 89% respectively to N28.17bn and N15.98bn, producing EPS of 0.89 kobo on its new 18bn outstanding number of shares resulting from the recent bonus issue of two new ordinary shares for every one held. Despite this, all other profitability ratios remained impressive for the period.
Earnings news and other factors drive the strength or weakness of any market are the different dynamics of stock markets technically that require effective strategies to navigate and follow trends profitably. The distribution phase in the midst of correction or pullbacks provides entry opportunities into value stocks by discerning investors and smart traders as repositioning of portfolios along sectors and companies with potentials to release positive numbers on the strength of their earnings power continue ahead of more Q3 numbers.
Historically, and in technical analysis, trends or patterns repeat themselves. This last quarter of the year 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 96,684.90 basis points and 96,702.26bps after forming a bottoming tail and uptrend candles. This created the perfect setup for high probability swing trade to catch on ahead of earnings news that will impact prices.
Japaul Gold, McNichols Consolidated Plc and others notified the NGX of their closed periods and board meeting dates to approve their scorecards this month. 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 pulled back but still trading above the T-line and two moving averages of 50-EMA and 50-SMA, this indicates strong momentum 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, NGX had a breakout failure in the midst of selling sentiment, expecting corporate numbers to give a clear direction. As more earnings reports hits the market. Candlestick formation and momentum indicators had reveal a weak market in search of strength. As ADX inched down at 18.37, while RSI and Money Flow Index were down to read 55.77 and 36.65 points against the previous session 55.93 and 45.84 points respectively. Market players should watch this current trend and trade with caution in the face of funds leaving 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 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 Wednesday fell to a two-week low as it continued oscillating, trading at $74.242 per barrel in the midst of weak china economic data and geopolitical tension over supply shock in the wake of continued conflict in the Middle East. Also, weak 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.
Midweek trading opened slightly up before pulling back for the rest of the session, despite oscillating on profit taking and selloffs in highly capitalized stocks, there were buying interest in other stocks. This situation pushed the NGX’s index to an intra-day low of 98,194.41basis points from its highs of 98,576.72bps, before closing below its opening figure at 98,291.53bps.
Market technicals for the session were mixed and weak with lower volume when compared to the previous session in the midst of flat breadth on a selling sentiment as revealed by Investdata’s Sentiments Report showing 25% buy position and 75% sell volume. The total transaction volume index stood at 0.57 points, just as impetus behind the day’s performance was weak as Money Flow Index inched down to read 36.65pts, from the previous day’s 45.84pts, indicating that funds left the market.
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Index and Market Caps
At the end of midweek’s trading, the composite NGX All-Share Index lost 249.40bps closing at 98,291.53bps after opening at 98,540.93bps, representing a 0.25% decline. Market capitalization fell by N148billion, closing at N59.56tr from the previous day’s N59.71tr, representing a 0.25% depreciation in value.
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Meanwhile, the downturn was driven by profit taking and selloffs in the shares of Aradel, Okomu Oil, Nestle, Wapco, UBA, FBNH, Zenith Bank, Accesscorp and Custodian Investment among others. This impact negatively on Year-To-Date gain which reduce to 31.45%, while Market capitalization was up to N15.32tr, representing 45.56% above its opening level for the year.
Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Banking and Industrial Goods closed marginally lower by 0.04% and 0.03% respectively, while the NGX Consumer goods led advancers after gaining 0.46%, followed by Insurance and Energy with 0.40% and 0.02% respectively.
Market breadth was at par as losers equaled gainers in the ratio of 23:23, while transactions in volume and value were down after investors exchanged 257.55 million shares worth N9.00bn. Volume was driven by trades in Fidelity Bank, UBA, GTCO, Champion Breweries and Zenith Bank.
Deap Capital and UACN were the best performing stocks, gaining 10% and 9.90% respectively, closing at N1.32 and N21.65 per share respectively on the back of market forces and earnings expectation respectively. On the flip side, Custodian Investment and Okomu Oil lost 8.98% and 6.86% respectively, closing at N11.65 and N338.00per share, purely on profit taking.
Market Outlook
We expect mixed sentiment to continue on positioning and profit taking 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
