Trading Within Buy Ranges, Stocks Become More Attractive For Income Investors, Traders

Market Update for July 5

The nation’s stock market had a mixed session on Monday, maintaining positive sentiments for the second successive session on a very high traded volume and positive breadth amid sector rotation ahead of the Q2 earnings season and economic data that would reveal the state of the economy.

The increasing buying interests in interim dividend-paying stocks have made many blue-chip companies, as well as medium and low cap stocks to break out from their consolidated patterns during Monday’s trading session as more companies announce their closed period. Many others are also giving board meeting notifications for half-year results approval, a situation that has triggered these waves in the market.

Also, insider dealings announcements and others continue to guide discerning investors and traders on their positioning after the just-ended quarter.  The mixed sentiment and trend expected at the market arena are due to players booking profit from the recent rally ahead of earnings expectations.

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Technically, the NGX index action is on an impulsive wave on a daily time frame after forming a double bottom and a zigzag chart pattern that supports an uptrend on improved volume to sustain a bull transition, ahead of financial news. The daily candlestick formation as we go into the month will give direction as to what we should expect in Q3, besides giving more insights into the entire second half of the year. Market recovery at this point may be powerful, depending on the state of the expected numbers and others, although with the possibility of maintaining what we saw in 2020 and the Q1 corporate earnings are high. 

Meanwhile, Monday’s trading opened slightly in the green, before oscillating between midday to the afternoon session on the accumulation of position and profit-taking among blue-chip stocks and low-priced equities that push the benchmark index to an intraday high of 38,243.00 basis points from its lows of 38,189.99bps. 

Market technicals on Monday were positive and strong, with volume traded higher than the previous day’s, in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 57% ‘buy’ position and 43% sell volume. The total transaction volume index stood at 1.31 points, just as the energy behind the day’s performance was relatively weak, as seen in the 48.48pts Money Flow Index, compared to the previous day’s 39.12pts, indicating that some funds entered the market despite  the marginal gain.

Index and Market Caps

At the close of Monday’s trading, the key performance index gained a marginal 8.00bps, closing at 38,220.01bps, from an opening level of 38,212.00bps, representing a 0.02% rise, just as market capitalization inched N4.17bn up, closing at N19.92tr, from its opening value of N19.92tr, representing a 0.02% value gain.

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The session’s upturn was driven by position taking in stocks like Access Bank, Stanbic IBTC, UBA, Zenith Bank, Cutix, United Capital, Oando, NCR, Livestock Feeds, PZ Cussons, Mutual Benefits, and Regency Assurance, among others. This mildly impacted on Year-To-Date loss, cutting it to 5.09%, while the drop in market capitalization YTD stood at N984,67 billion, representing a 5.19% drop from its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Consumer and Industrial Goods were down with 0.39% and 0.06% respectively, while the NGX Insurance led the advancers after gaining 1.47%, followed by Banking and Energy with 0.63% and 0.51% higher respectively.

Market breadth remained positive as gainers outnumbered losers in the ratio of 27:16, while activities in volume and value terms were mixed after players had traded 282.62m shares worth N1.87bn. Volume was driven by trades in Fidelity Bank, Wema Bank, Universal Insurance, FCMB and Sovereign Trust Insurance.

Cutix and NCR were the best-performing stocks after gaining 10% and 9.69%, closing at N3.30 and N2.49 per share respectively on earnings expectations and market forces.  On the flipside, Redstar Express and ABC Transport lost 9.81% and 8.11% respectively, closing at N3.31 and N0.34 per share, on selloffs due to poor numbers/ payout and profit-taking.

Market Outlook

We expect a mixed trend, being the beginning of earnings season month after forming a chart pattern that support an uptrend as bargain hunters take advantage of pullbacks to reposition ahead of the half-year earnings reporting season. It is noteworthy that oil price continues its recovery at the international market, even as full-year and interim dividend possibilities around the corner. 

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support a global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605