Profit Taking  May Linger On Bargain Hunting, As Investors React To Earnings Inflow, Bet On MPC Outcome

Market Update for January   30

Price correction hit Nigerian Exchange on Tuesday as profit taking resurfaced in the midst of more corporate earnings releases and high volatility ahead of the statutory deadline for submission of unaudited quarterly and full-year reports for the period ended December 31, 2023. The selling sentiment was seen across major sectors of the market, reflecting the fact that investors are cashing out of the January capital gains, after the NGX recorded four straight years of bull-run and consistent and almost daily higher highs, especially in January.

As noted earlier, the market enters the peak of the earnings reporting season where sentiments and earnings fundamentals drive momentum and liquidity level, as players react to the numbers being provided. These results are expectedly impressive or disappointing, depending on where the pendulum swings. This will drive oscillation and volatility as dividend announcements and corporate actions kick off in February with early filers.

During the trading session on Tuesday, many companies made available their unaudited results to the market. The numbers were mixed as some beat market expectations, while others were disappointing, because they came below market expectation, reflecting the gloomy economy and negative impact of some government policies. However, there was positive market reactions to impressive earnings from Wema Bank, Nahco and in particularly, Geregu Power which announced N9.00 dividend during the trading session.

The benchmark NGX All-Share index close lower, halting 13 consecutive trading sessions of back to back gains on a low traded volume and negative market breadth due to selloffs that weighed on the market. This broke down the exchange’s 104,000 basis points psychological line in the midst of volatility and end of the month portfolio rebalancing and ahead of dividend season that kicked off with Geregu power.

Already, the market is looking forward to big names and in particular more banks and blue-chips with February as date when they release their audited accounts with corporate actions. Also, numbers released so far have given more insights into market valuation and fundamental analysis as prices are correcting already ahead dividend declaration to create opportunity for new entrance.

Profit taking continued  in the midst of expectation of more corporate earnings, as sector rotation persists in the face of pullbacks. This has provided buying opportunities for discerning investors and smart traders watching out for the value areas 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 await corporate earnings, following the optimism fueled by the belief that the financial services sector would present impressive performances and growth prospects which will support a rebound and revaluation of assets in 2024 in the face of the rising macroeconomic headwinds. But the recent rally in the past few sessions was 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 as to where 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, 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,  Just as Jaiz Bank notified the market of its board meeting and closed period, while Africa Prudential inform the exchange of change in its leadership, as new Managing Director was appointed.

The candlestick formation and chart pattern on Tuesday revealed selling sentiment that may likely continue or reverse, depending on market forces and sentiments 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 state with bearish money flow divergent which is also a topping chart pattern that signal downtrend.

On the strength behind the trend or the session, momentum indicators were mixed, at this overbought state of the market, as the ADX read 84.77, while RSI and Money Flow Index are  looking different direction 88.92 and 100 points against the previous session 96.38 and 87.57 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are leaving the market as a result of profit taking. 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 rebounded on Tuesday, continuing its oscillation. It traded at $82.87 per barrel in the midst of IMF projecting global growth in 2024 and recent attack on US forces as conflicts in the Middle East and Ukraine persists.  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. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Tuesday’s trading on the NGX started slightly in the green before pulling back for the rest of the session, despite oscillating as profit taking hit low, medium and large cap companies. This pushed the NGX’s index to an intraday low of 102,885.10 basis points, from its highs of 104,706.10bps, before closing below its opening figure at 103,106.93bps.

Market technicals were negative and mixed, while transaction volume was lower compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 12% buy position and 88% sell volume. The total transaction volume index stood at 0.87points, just as momentum behind the day’s performance was strong as Money Flow Index looking up at 100pts, from the previous day’s 87.57pts, indicating that funds entered the market, despite closing in red.

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Index and Market Caps

At the end of Tuesday, the composite NGXASI shed 1,567.82bps to close at 103,106.85 after opening at 104,674.67bps, representing a 1.49% decline, just as market capitalization fell by N856.02 billion, closing at N56.43tr from the previous day’s N57.28tr, which also represented a 1.49% value loss.

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Meanwhile, the downturn was driven by selloffs in the shares of Accesscorp, Guinness, Transcorp, Cadbury, UBA, FBNH, Wapco, Zenith Bank, Mansard, Dangote Sugar and Oando, among others, which impacted negatively on Year-To-Date gain of 37.89%. Market capitalization YTD gain stood at N12.46tr, representing 37.90% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session closed in red, led by NGX Banking which fell 6.73%, followed by Insurance, Consumer goods, Energy and Industrial goods with 6.44%, 2.59%, 0.58% and 0.39% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 59:7, as transactions in volume and value were down, after players exchanged 648.95m shares worth N11.09bn. Volume was driven by trades in, Transcorp, Zenith Bank, Accesscorp and GTCO.

UPDC and Geregu Power were the best performing stocks, gaining 8.11% and 4.61% respectively, closing at N2.00 and N517.80 per share respectively on market forces and sentiments.  On the flip side, Guinea Insurance and Linkage Assurance lost 10% each, closing at N0.54 and N1.17per share, purely on profit taking and selloffs.

Market Outlook

We expect mixed sentiments and profit taking  to continue on bargain hunting 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