Profit Taking, Sell Sentiment May Linger, As Investors Digest Latest TB Rates To Reposition Portfolios

Market Update for February    7

Midweek’s trading activities on the Nigerian Exchange was dominated by mixed sentiments as the benchmark NGX All-Share index closed flat amid a low volume and negative market breadth in the face of profit taking and panic selloffs. This may be due to the hawkish disposition of the Monetary Policy Committee (MPC) meeting chairman and governor of the Central Bank of Nigeria (CBN).

Ahead of the policy meeting this month, the CBN Governor has signaled a return to orthodox monetary policy as Treasury Bills’ rates or yields doubles at the end of midweek primary market auction. There was over-subscription for the 364 days tenor, as the CBN focuses on attracting foreign portfolio investors to boost the nation’s external reserves, while managing the FX challenges at the detriment of economic growth and business activities. Already, cost of borrowing has increased, hurting a lot of businesses, while at the same time leading to high cost pf servicing government debts.

The latest auction rates of 17.24%, 18% and 19% for 91, 182, and 364-Day bills respectively will put more selling pressure on the equity market in the short-term, creating buy opportunities for dividend income investors. Already, all eyes are on audited corporate earnings and the January inflation reports ahead the upcoming policy meeting scheduled for February 26 and 27.

The outcome of midweek’s auction has further dented the bullish momentum recorded before now as reflected in the past three trading sessions, when the benchmark All-Share index tested the T-line. This indicates 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, midweek’s reversal pattern and likely continuation needs confirmation as trading opens Thursday. It will also depend on market forces and sentiments, considering the activities in the fixed income market as mentioned above.

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.

The bullish doji star candlestick formation and reversal chart pattern at the end of Wednesday trading session revealed a reversal or continuation of downtrend which needs confirmation, depending on market forces and sentiments today. 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 signaled weakness, as the market trend is changing already at this overbought region. As ADX reads 79.24, while RSI and Money Flow Index are looking down at 74.41 and 73.65 points against the previous session 74.41 and 78.87 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.

To navigate the rest of the quarter 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 price extend gains at midweek to continue its oscillation, as it trades at $79.55 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.

Midweek’s trading started slightly in the green before pulling back to oscillate for the rest of the session on profit taking across the major sectors of the market and buying interest in some stocks, a situation that pushed the NGX’s index to an intraday low of 101,937.01 basis points, from its highs of 102,369.03bps, before closing slightly below its opening figure at 102,106.30bps.

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 mixed sentiment as revealed by Investdata’s Sentiments Report showing 39% buy position and 61% sell volume. The total transaction volume index stood at 0.43 points, just as energy behind the day’s performance was strong as Money Flow Index looked down at 73.65pts, from the previous day’s  78.87pts, indicating that funds left the market.

For you to successfully invest and trade in this volatile market in 2024, order for Investdata’s video on Buy & Sell Technical Analysis Toolbox to navigate the volatile market profitably, enhance trading decisions and boost your bottom line. Also, to up your game in stock trading and investing, understanding the key to trading price and index action will go a long way to make the difference in your trading results, check out the video materials below.

Index and Market Caps

At the end of the trading session, the composite index NGXASI, slide by 1.74bps, closing at 102,106.30 after opening at 102,108.05bps, representing a 0.01% drop, just as market capitalization fell by N950 million, closing at N55.87tr from the previous day’s N55.87tr, which also represented a 0.01% value loss.

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 60 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.

To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. Take advantage of this service to buy right and sell right at the current oscillating market in the midst of earnings season, portfolio reshuffling, and repositioning as we await an economic reform policy that can stimulate and re-track the economy to the path of growth and development.

The downturn was driven by profit taking and selloffs in Dangote Sugar, GTCO, Mansard, Aiico, Wapco, Julius Berger, Zenith Bank and Wema Bank, among others, which impacted negatively on Year-To-Date gain as it reduce to 36.55%. Market capitalization YTD gain stood at N15.12tr, representing 36.56% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were down, save for the NGX Consumer goods index that closed  higher by 1.32%, while NGX Insurance index led the decliners after losing  1.49%, followed by Banking and Industrial goods  with 1.45% and 0.10% respectively. Just as NGX Energy finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 35:19, as activities in volume and value were down, after investors  exchanged  330.30m shares worth N6.24bn. Volume was driven by trades in,  Transcorp, FBNH, GTCO, UBA and Fidelity Bank.

Meryer and  Tripple Gee were the best performing stocks, gaining 10% and 9.84% respectively, closing at N5.72 and N4.13 per share respectively on  market forces and  sentiments.  On the flip side, Aiico and Cadbury   lost 9.92% and 9.5% respectively, closing at N1.18 and N21.90 per share, purely on profit taking and selloffs.

Market Outlook

We expect profit taking and selling sentiment to continue as players digest the new rates in TB and reposition their portfolios in the face of dividend expectations and volatility ahead of January CPI and 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