Sentiment Stay Mixed On Sustained Profit Taking, Repositioning Amid Fixed Income Market Trends

Market Update for February    20

The weak momentum on the Nigerian Exchange continued on Tuesday as selling sentiment extended its mood for a second successive session, on higher yields outlook in the fixed income market and selloffs in highly priced stocks and blue chip companies. This weighed on the market amid portfolio rebalancing ahead of expected corporate earnings and actions for the financial year ended December 31, 2023.

The composite NGX All-Share index closed lower on a low traded volume and negative market breadth that reflects the bear dominance and selloffs as market players react to the seeming mismatch of policies by the fiscal and monetary authorities. There is yet no clear direction as to where the economy is headed with the triple evils of Naira devaluation, imported inflation and lingering insecurity, among others. These continue to weaken the purchasing power of Nigerians, wiping out their entire savings.

The recent pullbacks signal a change in trend and direction, which will also give the market more strength to surpass the resistance level when it rebounds, already the index’s action is entering a decline or markdown phase after breaking down the T-line. All eyes are still on the outcome of FGN Saving bond and TB primary market auctions at the midweek ahead of policy meeting of CBN scheduled for February 26-27.

Meanwhile, the NGX witnessed selling pressure in the midst of continued sector rotation and portfolio repositioning, as this pullback creates buy opportunity for dividend investors ahead of the release of more audited accounts. Investors should watch out for the value areas of resistance and support levels, as more earnings hit the market any moment from now. The index’s action has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism fueled by the belief that the impressive performance from the financial sector among others may impact the market positively. This is despite concerns about the changing fundamentals of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The equity market is a leading indicator of the economy any time and any day, 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 FX market and 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 trades below the T-line on daily basis in the midst of high volatility and mixed momentum to remain above the short- and long-term Moving Averages on the weekly and monthly time frame.

The candlestick formation at the end of the trading session revealed continuation of downtrend which requires confirmation.  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 confirmed weakness of the market, as the ADX continues to look down at 62.14, while RSI and Money Flow Index are mixed at 59.52 and 53.79 points against the previous session 63.90 and 49.94 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are still 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 falling Naira.

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Oil price  on Tuesday slight down to continue its oscillation, as it trades at $82.46 per barrel in the midst of  weak global demand outlook and escalating Middle East conflict that has one way or the order support crude price. Coupled with the Ukraine and Russia war that had persisted in the face of inflation resurfacing again.  The rising geopolitical tension across the globe is also a major threat to many economies and the commodity market. 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.

Tuesday’s trading opened in the downside and was sustained throughout the session despite oscillating on selloffs in highly priced stocks and blue-chip companies among others. This pushed the NGX’s index to an intraday low of 101,047.70bps, from its highs of 102,690.00bps, before closing below its opening figure at 101,060.70ps.

Market technicals for the session were negative and mixed, as volume was lower compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 1% buy position and 99% sell volume. The total transaction volume index stood at 0.39 points, just as energy behind the day’s performance was relatively strong as Money Flow Index turned up slightly  at 53.79pts, from the previous day’s 49.94pts, indicating that funds entered  the market, despite closing in red.

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Index and Market Caps

The benchmark NGXASI shed 1,235.09 basis points, closing at 101,060.67after opening at 102,393.23bps, representing a 1.39% decline, just as market capitalization fell by N729.10 billion, closing at N55.30tr from the previous day’s N56.03tr, which also represented a 1.30% value loss.

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The downturn was driven by selloffs and profit taking in the shares of BUA Cement, Unilever, UBA, Zenith Bank, Dangote Sugar, GTCO, Accesscorp, Transcorp, Flourmill, NEM and Aiico, among others, which impacted negatively on Year-To-Date gain which dropped to 36.94%. Market capitalization YTD gain stood at N14.24tr, representing 36.95% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session closed red, save for the NGX Energy that closed higher by 0.21%, while NGX Insurance led the decliners after losing 3.89% followed by Industrial goods, Banking and Consumer goods with 3.62%, 2.37% and 0.87% respectively.

Market breadth was negative with losers outnumbering gains in the ratio of 43:8, while transactions in volume and value were down after investors exchanged 249.10m shares worth N6.41bn. Volume was driven by trades in, Transcorp, UBA, Fidelity Bank, Zenith Bank and GTCO.

Juli Pharmacy   and Eterna were the best performing stocks, gaining 9.94% and 6.17% respectively, closing at N1.77 and N17.20 per share respectively on market forces and sentiment. On the flip side, Honeywell Flour and BUA Cement lost 10% and 9.98% respectively, closing at N3.60 and N142.95 per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed sentiment to continue on profit taking and portfolio repositioning in the face of the fixed income market activities and expected audited corporate earnings.  This is amidst the volatility 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