Profit Taking, Mixed Sentiment Continue As Investors Reposition Portfolios, Bet On Dividends

Market Update for February    6

Pullback on the Nigerian Exchange continued on Tuesday, amid the hawkish disposition of the Monetary Policy Committee (MPC) meeting chairman and governor of the Central Bank of Nigeria (CBN) which has triggered panic selloffs and profit-taking amidst expectations. This is coming ahead of more audited corporate earnings as all eyes are on expected January consumer price index reports, while portfolio rebalancing persists in the face of rising inflation and fixed income outlook as a result of likely rate hike in the coming policy meeting at the end of the month.

These concerns dented the bullish surge and momentum as reflected in the past two trading sessions when the benchmark All-Share index tested the T-line, indicating a change in trend to consolidation phase and distribution that leads to a decline, once the NGX index’s action broke down the T line ahead of the 20-day Moving Average. The likely change in trend is normal and expected, after the bull ascendency in January which has been a trend in recent years after the upbeat mode in the first month of the year. This was followed by correction and mix trend in February and March before another rebound on the strength of audited earnings reports and dividend season in the midst of volatility. However, the reversal pattern on Tuesday and its continuation needs confirmation as trading opens Wednesday, and depending on market forces and sentiments, aside activities in the fixed income market as mentioned earlier.

The composite NGXASI closed lower, as profit taking in highly priced stocks and blue chip companies weighed on the market in midst of low traded volume and negative market breadth, as the pullback has created new buy opportunities for smart traders and discerning investors, since the quarterly and unaudited full-year 2023 financials are offering insights into what to expect from these companies between now and March 31, 2024. Meanwhile, companies that have opted not to release unaudited Q4 2023 are expected to file their audited full-year results with corporate action by these recommending dividend for their shareholders.

The market continues to witness selloffs in some sectors and stocks in the midst of expectation of more corporate earnings inflow, as sector rotation persists in the face of pullbacks. Investors should watch out for the value areas of resistances and supports levels ahead of company results hitting the market any moment from now. The NGX has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism that was fueled by the belief that the impressive performance from the financial sector. There is also the growth prospect of the economy in the face of rising macroeconomic headwinds that will support rebound and revaluation of assets in 2024.

The stock market is a leading indicator of the economy, as such 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 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.

Tuesday’s candlestick formation and chart pattern revealed a downtrend that may likely continue or reverse, depending on market forces and sentiments. 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 is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The momentum indicators had signaled weakness, as the market remain in its overbought state and  ADX  reads 80.82, while RSI and Money Flow Index are looking down at 74.41 and 78.87 points against the previous session 80.40 and 84.82 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are leaving the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and negative.  Also, the anticipated financial market and economic reset in 2024, comes with challenges and huge opportunities to create wealth for smart investors and traders.

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Oil price remained relatively flat on Tuesday to continue its oscillation, trading at $78.67 per barrel in the midst of US inventories falling and escalating Middle East conflict, while Ukraine and Russia war 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.

Meanwhile, Tuesday’s trading opened slightly in the upside before pulling back for the rest of the session on profit taking and selloffs across the major sectors of the market, a situation that pushed the NGX’s index to an intraday low of 102,033.20 basis points, from its highs of 103,784.50bps, before closing below its opening figure at 102,108.01bps.

Market technicals were negative and mixed, as 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 4% buy position and 96% sell volume. The total transaction volume index stood at 0.62 points, just as impetus behind the day’s performance was strong as Money Flow Index looked down  at 78.87pts, from the previous day’s  84.82pts, indicating that funds left the market.

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Index and Market Caps

The key performance NGXASI, at the close of trading session shed 1,551.76bps, closing at 102,108.05 after opening at 103,659.81bps, representing a 1.50% decline, just as market capitalization fell by N436.97bn, closing at N56.72tr from the previous day’s N57.16tr, which also represented a 0.73% value loss.

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The session downturn was driven by profit taking and selloffs in the shares of BUA Cement, Accesscorp, Transcorp, Guinness, PZ, UBA, Zenith Bank and Cornerstone, among others, which impacted negatively on Year-To-Date gain as it reduce to 34.37%. Market capitalization YTD gain stood at N15.12tr, representing 34.38% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were down, save for the NGX Energy index that closed  flat, while NGX Industrial goods index led the decliners  after recording 3.79%, followed by Banking, Insurance and Consumer goods  with 2.27%, 1.00% and 0.22% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 45:14, as activities in volume and value were down, after investors  exchanged  494.19m shares worth N7.60bn. Volume was driven by trades in, Jaiz Bank, Universal Insurance, Japaul Gold, GTCO and FBNH.

Cadbury and Juli Pharmacy were the best performing stocks, gaining 10% each, closing at N24.20 and N0.77 per share respectively on earnings expectation and market sentiments.  On the flip side, Conhall Plc  and BUA Cement  lost 10%  each, closing at N1.53 and N166.50per share, purely on profit taking

Market Outlook

We expect profit taking and mixed sentiment to continue as players reposition their portfolios in the face of dividend expectations and volatility ahead of upcoming policy 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