Profit Taking On NGX Offers Entry opportunities Ahead Of H1 Earnings Kick-Off

Market Update for July 8

The bears extended their dominance on the Nigerian Exchange Monday to begin the week on a negative note amid the resurgence of buying sentiment and high traded volume, as demand for financial services stocks and oil companies increased ahead of the half-year earnings reporting season likely to kick off any moment from this week. Also, the benchmark NGX All-Share index closed slightly lower on a negative market internals, after the market had resisted decline for three consecutive sessions and remained above the T line after breaking it to retrace up, thereby forming identical three black crows that revealed bearish transition.

At the same time, the market is forming a triple bottom pattern that also supports reversal of trend, as revealed by the candlestick at the end on Monday trading. Weakness after strength in price action shows a strong support level 99,800 even as resisting it may signal another demand zone ahead of companies and economic numbers that will confirm a new uptrend depending on of the state of corporate earnings and macroeconomic indices as all eyes are on these numbers to drive flow of funds in the financial market. As more corporate disclosure regarding banks recapitalisation continued with GTCO announcing plans to launch public offer of 9 billion ordinary shares at N44.50.

The market is like any good drama, keeping us on the edge of our seats. Monday’s cautious opening could suggest a pause on the NGX. However, discerning investors know that the market often takes a moment to catch its breath before resuming its upward climb, especially if the corporate numbers beat expectation in the midst of potential economic slowdown. Meanwhile, all eyes are on the early filers like Infinity Trust Mortgage Bank, United Capital, Africa Prudential and others. As the rest of the year will most be dominated by primary market activities of banks and other companies raising funds to recapitalized their operations and businesses.

The NGX index’s action remains above 100,000 psychological line and the T-line to trade ahead of the two moving averages of 50-EMA and 50-SMA in the midst of changing market fundamentals and technical to indicate slowing momentum. Also, market players are looking forward to economic data and corporate earnings to reveal the state of economy and companies.  As economic reforms of the government through the fiscal and monetary policies are yet to put the nation’s economy on the path of recovery, due to continued mismatch of policies and implementation style in the face of oscillating oil production output and exchange market challenges. Despite oil price selling above $86 in the international market.

There is an inflow of more Annual General Meetings notifications. In a similar manner, some other companies presented resolutions from their meetings, with the latest coming from Fidson Healthcare, while Airtel Africa updated the market of its ongoing share buyback. Just as The Initiates Pls informed the market of its insider dealing.  In the midst of all these, it is safe for investors to 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 market has signaled a bearish trend and bottom pattern reversal as revealed by candlestick formation and weak momentum indicators. As ADX inched up at 21.51, while RSI and Money Flow Index were down to read 57.42 and 41.37 points against the previous session 57.71 and 46.91points respectively. Market players should watch this current trend and trade wisely as reversal is underway in the face of funds leaving the market on profit taking. Also, trading volume pattern continued to oscillates, suggesting selloffs and buying interest in some sectors in the midst of wait and see attitude ahead of Q2 corporate numbers.

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 pulled back on Monday to continue its oscillation, trading at $85.75 per barrel  after a record of 4 weeks gain in the midst of  positive outlook on demand and decline in US inventories ahead CPI reports that will impact US rate cuts or not. As mixed economic data from China and trade war from the west remain a concern for market players across the globe. Just as increasing geopolitical tension threats many economies even with the expect impact of rate cuts on the economic activities in the face of sticky inflation. This trend may likely continue in 2024, this up and down movement that drive volatility. Even as cases fire discussion is ongoing in Middle East conflict, while war in Ukraine continue to influence oil supply and demand.

Meanwhile, Monday’s trading opened on the downside, and was sustained throughout the session, despite oscillating  on selloffs in some stocks and buying interest in others  across some major sectors, a situation that pushed the NGX’s index to an intra-day low of 99,894.52bps from its highs of 100,022.20bps, before closing slightly  below its opening level at 100,006.79bps.

Market technicals for the session were weak and mixed with higher volume when compared to the previous session in the midst of breadth favoring the bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 88% buy position and 12% sell volume. The total transaction volume index stood at 1.25 points, just as impetus behind the day’s performance was relatively weak as Money Flow Index  slide to read 41.37pts, from the previous day’s 46.91pts, indicating that funds left  the market.

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Index and Market Caps

At the close of Monday’s trading, the composite NGX All-Share Index, slip 14.92 basis points to close at 100,006.79bps after opening at 100,022.00bps, representing a 0.02% drop. Market capitalization fell by N8.62bn, closing at N56.57tr from the previous day’s N56.58tr, which also represented a 0.02% value loss.

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This session downturn was driven by profit taking and selloffs in the shares of Transcorp Hotel, PZ, FBNH, Dangote Sugar, Chams and CWG among others.  The day’s loss impacted mildly on Year-To-Date growth which inched down to 33.75%, while Market capitalization YTD gain stood at N11.57tr, representing 38.26% above its opening level for the year.

Bullish Sector Indices

Sectoral performance indexes were up, save for NGX Consumer goods index that closed lower by 0.25%, while NGX Energy index led the advancers after gaining 1.45%, followed by Banking and Insurance with 0.27% and 0.18% respectively. Just as NGX Industrial goods finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 24:22, while transactions in volume and value were up after players exchanged 689.98 million shares worth N7.17bn. Volume was driven by trades in Ellah Lakes, Universal Insurance, GTCO, UBA and Aiico.

Veritas Kapital and Daarcomm were the best performing stocks, gaining 9.57% and 8.33% respectively, closing at N1.26 and N0.52 per share respectively on earnings expectation and sentiment. On the flip side, PZ and CWG lost 10% and 9.80% respectively, closing at N19.80 and N6.90 per share, purely on selloffs and profit taking.   

Market Outlook

We expect mixed sentiments and profit taking that will create new entry opportunities for discerning market players ahead of earnings reporting season kicking off any moment from now, as portfolios repositioning continue, while 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