Reversal Imminent On NGSE, As Benchmark Indicators Resist Further Decline

Market Update for December 17

The Nigerian stock market on Monday had a continuation of its volatility but closed lower to start the week on a bearish note and high selling pressure that was witnessed in four sectors, except for Consumer Goods that emerged the lone gainer for the session.
The session started off lower and on a negative market breadth further indicating doubt on the expected Santa Claus rally as market technicals remained negative at the beginning of the last full trading week before the Christmas festivities.
However, it is a function of market forces that determine what happens between now and then as fund managers and market players position for year end.
Also, the expected move by some listed companies to close the year higher may impact positively on prices that are already low.
The benchmark index opened for the week gapping up early in the morning till mid-morning, before pulling back on selloffs to extend the four-wave decline, before taking the index from intraday high of 30,722 basis points, to a low of 30,553.90bps. It then retraced up to close the day at 30,609.06bps on a low traded volume.
The market has remained very dicey, despite the coast becoming clearer on daily basis as per the Presidential election and who is likely to win. The confidence among investors in the government and its economic policies are still shaky, even as the blame game continues without a clear direction as to where the nation’s economy is heading.
The impact of government policy implementation is a reflection of what has happened to Diamond Bank, following which the Central Bank of Nigeria (CBN) needed to quickly save the financial system by making its ongoing marriage talks with of Access Bank a reality. Such move would also strengthen the banking industry and boost confidence in the sector (READ MORE).
Monday’s traded volume was lower than previous day’s in the midst of strong selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a sell position of 67% and 33% buy volume. Volume index for the day’s total transactions was 0.88.
The energy behind the day’s market performance was marginally down, as reflected in the money flow index at 29.31bps, from previous day’s 29.56bps, indicating that funds entering some stocks are weak in the midst of the prevailing low market liquidity.

Index and Market Cap
The benchmark NSEASI shed 63.73bps at the end of Monday’s trading session, closing at 30,609.06bps from the 30,672.79bps, representing 0.21% decline, just as market capitalization fell by N23.27bn, closing at N11.18tr from an opening value of N11.19tr, representing a 0.21% depreciation in value.

MACD on weekly and daily time frame (see opening graph) signaled reversal. So, let us wait to confirm as trading opens this morning.

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This bear trend was impacted by losses suffered by medium and high cap stocks like: Unilever, Guaranty Trust Bank, Zenith Bank, FBNH, Oando, Fidelity Bank, Wema Bank and Honeywell Flour. This impacted negatively on Year-to-Date loss position, which climbed to 19.96%, while market capitalization decline YTD came to N2.43tr from its opening level in January, representing 17.85% decline during the period.

Bearish Sectors Indices
The sectoral indices were largely bearish except for the NSE Consumer Goods Index that closed marginally higher, just as market breadth turned negative with decliners out-numbering advancers in the ratio of 21:17.
Market activities were down in volume and value by38.45% and 24.88% respectively to 214.96m shares worth N1.73bn, compared to previous day’s 349.23m units valued at N2.31bn. Transaction volume was driven by financial services and conglomerates stocks like: Diamond Bank, Mansard, FBNH, Access Bank and Transcorp.
Diamond Bank and Access Bank were the best performing stocks, as they topped the advancers table after gaining 9.47% and 9.40% respectively to close at N1.04 and N8.15 each on the back of the news on the signing of a Memorandum of Agreement that will see Access Bank acquire the entire shares of Diamond Bank at N3.13 each. The decliners’ side was led by Forte Oil and Ikeja Hotel, following their 9.96% and 9.63% loss to close at N21.70 and N1.69 each, on profit taking and market force.

Market Outlook
We expect this volatility to be sustained as bargain hunting and portfolio repositioning for year-end to shape performance of the market, with MACD on weekly and daily time frame crossing the signal line to indicate reversal is imminent, as the market is still resisting further decline. Especially as the number of companies hitting new 52-week low reduced with Lafarge Africa being the stock that made a new low at the end of trading on Monday, which may not be unrelated to its planned return to the market for fresh capital.
The ongoing volatility will persist as Q3 numbers assist investors and fund managers rebalance their portfolios, while watching the political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of weak company, economic and market fundamentals.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467