Profit Taking Yet, As Investors Eye Sound Stocks, Ahead Of Dec. Inflation, Earnings Season

Market Update for the Week Ended January 12 and Outlook for January 15-19

The bull dominance on the Nigerian Exchange continued for the second consecutive trading week of this year in the midst of increased buying momentum and profit taking, with the benchmark NGX All Share index closing on a positive note. Last week was also the best trading weeks so far on the NGX in January since 2020, after the NGX recorded week-to-date gain of 4.24% on a very high traded volume and buying sentiment. This resulted from continued funds flow into the market on the impact of the sustained depreciation of the Naira against major currencies of the globe, aside from the strong corporate earnings that are expected to support higher payouts at the end of day. This is besides the fact that returns on other investment windows remain negative in a hyper-inflationary environment.
The NGX peak earnings reporting season is around the corner. It comes with dividend rewards and will kicking-off any moment from now, particularly the unaudited quarterly financials of companies with December, September and June as their financial year end. The market is looking forward to Q4, Q3 and Q2 numbers of different quoted companies.
During the week, the composite NGXASI hit another new all-time high of 83,240.25 basis points, before pulling back at the midweek and rebounded for the rest of the trading week to form a double top on daily chart.
The ongoing portfolio rebalancing and repositioning for the year, ahead of dividend season supported buying sentiments in the face of volatility as investors and traders accumulate positions across the major sectors of the market and large cap companies. These pushed the index’s action to another historic all-time high, with the NGXASI closing above the 83,000 psychological line, and heading to the 84,000 mark the midst of extended Santa Claus rally, and the earnings season. Added to this is the prevailing disconnection of the market from the nation’s economic realities as revealed by emerging weak macroeconomic data. The year 2024 started with high expectations, challenges and opportunities to create wealth for discerning investors and smart traders, if government policies complement each other to put the economy in the path of recovery and progress.
The expected December inflation reports from the National Bureau of Statistics are likely to accelerate to 28.72% year-on-year from 28.22% in the month of November, as a result of festivity period induced high prices of goods and services, imported inflation due to Naira depreciation, high cost transportation and energy. There are also the issues of sustained insecurity, especially in the north-east and west that is still keeping farmers from their farms. The impact of geopolitical tension across the globe has continued to impact global economy, especially the Middle East conflict that heightened after the UK and US launched an attack on Iran-aligned Houthi rebel positions in Yemen after the exodus of commercial ship on the Red Sea. This in no distant time will affect oil supplies and other commodities. Signaling another round of inflation in the matured economies which had enjoyed some decline in rates in recent time.
The material shifts of NGX index’s action since it broke out 65,652.38 basis points in 2008 to make a new historic milestone of 83,042.96 after testing 83,240.25 points due to the ongoing portfolio repositioning as investors hedge against inflation and market downturn on the strength of the impressive corporate earnings. Others include the outstanding numbers of share, shareholding structure and dividend history, which impacted stock prices across board, while also reflecting on the very high volume of transactions and positive market breathe for the week. All attention has now moved to the policy agenda of the fiscal and monetary authorities with high hopes that they would fix the economy or put it on recovery path quickly. The disconnection of the market and economy continues to linger in the face of market volatility and weak economic activities.
To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Mondays, Wednesdays and Fridays, 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 breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain high traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.
Oil price during the week under review oscillated before rebounding to trade at $78.29 per barrel following oil tanker hijack on the Red Sea, as middle east conflict escalated after UK and US strike Houthi in the face of mixed global macroeconomic data as inflation resurfaced. As oil demand outlook remains mixed, despite the signal of rate cut in 2024. We note also the rising geopolitical tensions across the globe and supply disruptions longer, due to the Russia-Ukraine war that has lingered for more than a year, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
The bull-run continued on the NGX after recording four trading sessions of up market and one day of down market in the second trading week of the new year in the midst of profit taking to closed higher and thereby extending the positive outing for twelfth successive week on a very high traded volume and buying sentiment. Even as the renewed buying interest in the consumer and industrial goods sectors further supported the market under review.
The week’s trading opened on a positive note, extending the previous session’s gain by 0.53%. This trend continued on Tuesday as the index gained 3.57%, before pulling back at midweek by 1.40% on profit taking by market players but rebounded on Thursday and Friday after gaining 0.70% and 0.54% respectively on accumulation of financial services providers, manufacturing stocks and others. This brought the week’s total gain to 4.24%, compared to the previous week’s 6.54% positive position.
In all these, the benchmark NGXASI gained 3,378.30 basis points, closing at 83,042.96bps, compared to the week’s 79,664.66 bps opening level, after touching an intra-week high of 83,240.25bps and a low of 79,562.13bps. Market capitalisation also rose by N1.8tr to N45.4tr representing a 4.24% appreciation in value.
Top advancers comprised low priced and medium cap stocks in the face of buying sentiment in blue chip companies amidst high volatility. Also notable is the fact that investors are taking advantage of the profit taking and low valuation, despite some stocks are hitting new highs to buy into value and dividend paying companies ahead of their numbers.
Trade metrics for the period was positive and strong as advancers outnumbered decliners in the ratio of 75:23 on buying sentiments as revealed by investdata sentiment report showing 95% ‘buy’ volume and 5% sell position. Money Flow Index was looking up to record the highest money entrance into equity at 100bps from the previous week’s 100 points, an indication that funds hit the market on a weekly timeframe.

Technical View

The NGX bullish channel pattern continued after breaking out the 80,000 psychological point and other levels to test 83,240.25bps on the weekly chart and very high traded volume for the period, signaling accumulation of position by smart money in the face of high volatility and profit taking, while position trading is ongoing by investors increasing their holdings, as the market trades above the T line on a daily, weekly and monthly time frame to sustained its uptrend in the midst of positive sentiment and buying interest. We note also that the index is trading above the 200-day moving average on the weekly time frame.

Bullish Sectoral Indices
The sectorial performance indexes closed higher, save for NGX Oil/Gas that closed lower by 1.61%, while NGX Consumer goods index led the advancers after gaining 9.6%, followed by Insurance, Banking and Industrial goods with 7.63%, 5.10% and 4.80% respectively.
Activities in volume and value were up, as players exchanged 5.72bn shares worth N88.83bn, compared to the previous week’s 3.32bn units valued at N41.76bn. Volume was driven by Financial Services, Conglomerates and Energy Industry. The was boosted specifically by trading in Transcorp, FCMB, Fidelity Bank, Oando and Accesscorp.
The best performing stocks for the the week were Cadbury and Veritas Kapital Assurance, after gaining 42.31% and 39.47% respectively, and closing at N24.05 and N0.53 per share on market sentiments and forces. On the flip side, Daar Communication and Total Energies lost 30.23%and 10% respectively, at N0.90 and N346.50 per share, purely on profit taking and selloffs.

Outlook for the week
We expect profit taking and mixed sentiment to continue, as market players target fundamentally sound stocks ahead of December consumer price index and earnings reporting season in the face of depreciating naira that made NGX stocks cheaper and rising inflation. Also, the market awaits the steps government would take to resolve the county’s lingering FX challenges.
However, retracement to the 74,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605