Retracement Ahead, Amid Oscillating Trends, Sentiments On Portfolio Reshuffling, Sector Rotation

Market Update for August 17

The seesaw movement on the Nigerian Exchange Continued at the midweek with the benchmark NGX All-Share index ranging and closing slightly lower, reversing marginal gains of the previous session on a low traded volume in the midst of negative market breadth and low liquidity. This suggests indecision among market players as seen in the lack of supply, which could signal smart money moves to markup prices by jumping into the market any moment from now. However, we need to wait for confirmation of this, as interpretation of recent consumer price index and corporate earnings by institutional investors and others are ongoing.

Meanwhile, market volatility continues to support technical traders as the latest inflation figure is likely to trigger flow of funds in the financial markets to preserve value, which will lead to continued portfolio reshuffling to stay ahead of inflation rate. Also, money flow index in the equity space is on the rise, and look up in the midst of low demand and mixed sentiment to indicate funds are entering stocks gradually since it has crossed the 50 points. Equally noteworthy is the relatively low demand at the auction window mirrors the tight system liquidity, even as the financial system has remained under pressure, forcing short-term rates to double-digit high in the money market. This has impacted demand across Treasury, Open market operations (OMO Bills) as well as Bond auctions, forcing spot rates upward.

The prevailing mixed sentiments is due to selloffs, pullbacks and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue chips relative to value. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields indicating the possibility of a higher payout as a hedge against the soaring inflation.

The volume pattern in recent days and weeks reveal accumulation in some sectors and individual stocks, apart from selloffs in some other stocks and sectors as money flow index which also suggest that funds are entering the market despite the mixed trend and breadth. The prevailing market condition is creating ‘buy’ opportunities for discerning investors and traders that understand stock market dynamics, especially as these companies’ earnings performance beat market expectations to indicate their inherent value and the cheap state of these stocks.

Despite the oscillating and sideway trend in the market, value investors are cashing in on the pullbacks opportunities at this point, while continuing to digest the recent impressive corporate earnings that seems to impact the share prices and the market regardless of the low liquidity and confidence. It is noteworthy also that these numbers are revealing value and intrinsic upside potentials of these stocks.

While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst the better-than-expected earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.

At the end of midweek’s trading, the NGX index’s action still trades below the ‘T line’ and the 20-day moving average, to formed a double bottom that signal reversal as sector rotation and portfolio rebalancing increased amidst the recent scorecards of many companies on the exchange. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.

To navigate this current market situation profitably using fundamental and technical analysis to run, join investdata live sessions at noon every 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 mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil prices rebounded slightly, trading at $93.45 per barrel in the international market, following seasonal demands, US inventory report in the mixed of expected increase in supply of crude, china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

Meanwhile, midweek trading started on the downside and oscillated for the rest of the session on selloffs and position taking in high cap stocks, a situation that pushed the NGX’s index to an intraday low of 49,681.24bps from its highs of 49,712.96ps, before closing slightly below its opening point at 49,691.17bps.

Market technicals were weak and mixed, with lower volume of shares traded than the previous day in the midst of negative breadth on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 31% buy volume and 69% sell position. The total transaction volume index stood at 0.74points, just as energy behind the day’s performance was relatively strong as Money Flow Index is looking up at 60.23pts, from the previous day’s 53.53pts, indicating that funds entered the market, despite sliding down.

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Index and Market Caps

At the end of Wednesday’s trading, the NGXASI shed 16.73bps, closing at 49,691.17bps, after opening at 49,709.46bps, representing a 0.04% drop, just as market capitalization fell by N9.87bn, closing at N26.80tr, from the previous day’s N26.81tr, which also represented a 0.04% value loss.

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This day’s downturn was driven by selloffs and profit taking in PZ, Caverton, Honeywell, Courtville Business Solution, SCOA, Skyway Aviation, Zenith Bank, FBNH and UBA, among others, which impacted mildly on Year-To-Date gain, as it increases to 16.33%.  Market capitalization gain YTD also rose to N3.33tr YTD, representing a 20.20% rise over the opening level for the year.

Bearish Sector Indices

The sectorial performance indexes were mixed, with the NGX Insurance closing 0.86% higher, while the NGX Banking led the decliners after losing 0.21%, followed by Energy and Consumer goods with 0.21% and 0.07% respectively.

Market breadth remain negative in the ratio of 16:10; just as activities in volume and value terms were mixed, after players exchanged 128.79m shares worth N4.12bn, with volume driven by trades in FBNH, Zenith Bank, UBA, Cornerstone Insurance and UBN.

Prestige Assurance and Sovereign Trust Insurance were the best-performing stocks, gaining 9.09% and 8% respectively, closing at N0.48 and N0.27per share respectively on market forces. On the flip side, Courtville Business Solution and SCOA lost 9.80% and 9.79% respectively, closing at N0.46 and N1.75 per share, purely on profit taking and selloffs.

Market Outlook

We expect a retracement up in the midst of oscillating trends and sentiments that had continued on portfolio reshuffling and sector rotation on bargain hunting as players interpret July inflation of 19.64% and impressive half-year results in expectation of more company’s scorecards, especially from the first-tier banks in the midst of sovereign risks, as all eyes are on interim dividends.

We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605

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