Weak Momentum May Linger, Amid Q1 Earnings Inflow, Portfolio Rebalancing Economic Data

Market Update for the Week Ended May 10 and Outlook for May  13-17

Bearish sentiments dominated trading on the Nigerian Exchange in the first full trading week of May. Recall the old adage that “sell in May and go away” in the matured markets as market players go on vocation, resulting in less trading activities in these markets. The NGX over the last decade has defied the “sell in May” mantra, as the index closed positive seven times within the period, and red in the other three years. This has given market players an insight into what to expect from the market in the remaining days and weeks in the month and even beyond.

On the strength of Q1 numbers flowing in, and positioning for dividend income, especially those with qualification and payment dates in May, we expect positive sentiment to show up, even as investors expect the Consumer Price Index for April, the outcome of the Central Bank of Nigeria’s policy meeting and Q1 GDP reports. However, the stocks of service providers have remained attractive at current market value.

The changing market sentiments and dynamics ahead of more expected corporate  earnings and key macroeconomic data are likely to give investors an insight into what should be expected from different sectors of the market. These numbers will reveal the strength and upside potentials across sectors, industries and companies on the exchange. Other factors include the rising economic headwinds resulting from the ongoing reforms by the government, foreign exchange market hiccups and the raging insecurity across the country, all of which remain major sources of concern for  local and international investors. The situation is made worse by the resultant soaring inflation that has now galloped into a new all time high.

The benchmark NGXASI pulled back in the period under review to form a bottom reversal chart pattern on above average traded volume, signaling uptrend that needs confirmation in the new week. Market participants are expected to use the impressive earnings performance of some companies and other strategies to navigate this volatile market through  portfolio diversification to hedge against rising inflation and market downturn. This is just as traders are exploring avenues to mitigate the impact of higher yields in the alternative investment window, by taking advantage of low valuation at the current market condition.

Technically, the market remains at its oversold region to support reversal on daily and weekly chart, as sentiment report for the period revealed selling sentiment of 92% and MFI reads 34.61 points looking down on a weekly chart. Trading below T line on a daily and weekly time frame to reflect weak momentum. The negative  outing  in the midst positive market breadth and high traded volume, reveraled  position taking in dividend paying stocks by investors  and bargain hunters, as the  pullbacks create new  buying opportunities  into quality companies with high yield, strong earnings power and  low valuation.

It was a positive outing for the global stock markets, as bullish sentiment for impressive corporate earnings and renewed optimism for rate cut by fed and others had boosted momentum, that led to the MSCI world index gaining 1.7% for the week under review. As mixed macroeconmic reports from different demain signal high possibility of inflation cooling down in coming months. Even as the increasing geopolitical tensions are already threatening many economies, as commodities prices continued to oscilates.  In the new week,  we expect the market to be shape by  key economic data releases in the US and Eurosone, ranging from CPI, GDP, PPI and others to give direction, depending on the state of these reports.

To navigate the rest of Q2 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s 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 corrections and pullbacks to continue the markdown phase. As volume of transaction witnessed within the week remain low, it is time to go shopping for undervalued stocks, sector rotation and the next insider dealing opportunity.

Oil price during week oscillated to recorded weekly flat position, as it trade at $82.79per barrel following the mixed macroeconomic data from US  in the midst of expected improve global demand. As rising geopolitical tensions threats supply, coupled with war in Ukraine and Russia disrupting  in oil output in the face of osculating price. The up and down movement of oil price has continues to drive volatility across different investment windows and inflation again.

Movement Of NGXASI

The NGX recorded a bearish performance in the week under review, as the benchmark NGX All-Share index closed lower in four sessions of down market and up just once, as selloffs and profit booking dominated trades in the face of mixed earnings and portfolio rebalancing. The latest Q1 numbers from UPDC were impressive, showing a return to profit from a loss position in 2023, offering an insight into where it is heading in 2024. Airtel Africa and UPDC made available their mixed audited full-year accounts for 2023. The telecommunications giant posted negative earnings that reflected the impact of FX loss, but despite this the company recommended a final dividend of US 3.57cents. UPDC’s topline fell by 9% to N5.34 billion, while profit after tax inched up by 10% to N221.51m.

Trading for the week started on a negative note,halting  previous gains with the index shedding 0.89% on Monday, a trend that was sustained on Tuesday and midweek as the market closed 0.48% and 0.02% lower respectively on the back of selloffs in Airtel and other stocks. The index managed to limp up by 0.03%on Thursday, before slidding 0.02% on Friday when it witnessed mixed sentiment across major sectors of the market. This brought  the week’s  1.36% total  loss from the previous week’s 1.46% gain.

In all, the composite NGX All-Share Index lost 1,353.49bps, closing at 98,233.76bps, from previous week’s 99,587.25bps closing level, after touching an intra-week low of 98,048.96bps from a highs of 100,437.70bps. Market capitalisation also fell by  N761.4bn to N55.6tr, representing a 1.36%  deprecation in value, just as the share price  of Nascon and Wema Bank were adjusted for a bonus of 1 for 50 shares held, and a cash dividend of  50 kobo respectively.

The top advancers’ table  for the week was dominated by medium and low cap stocks in the midst of profit taking  and selloffs, even as more stocks appreciated in value during the period. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of more earnings reports and unfolding events in the government reform process.

Market technicals for the period were positive and strong  as gainers  outnumbered losers  in the ratio of 40:37 on a selling sentiment as revealed by investdata sentiment report showing  8% ‘buy’ volume and 92% sell position. Money Flow Index was looking down at 34.61points  from the previous week’s 46.30 points, an indication that funds left the market on a weekly time frame.

Technical View

The NGX index’s action formed a reversal bearish engulfing candlestick and triple bottom chart pattern that signaled uptrend underway, which needs to be confirmed in the new week, as more financial reports are expected to hit the market and  change momentum, especially from the insurance companies and march year end accounts. The selling  sentiment for the period in the face of high valuation and mixed corporate earnings, even when higher yields in the alternative market still remain below inflation rate.

Already, the index  has entered a distribution phase on a weekly time frame and ranging in daily chart. We note that the 97,734.56bps is a strong support level on the daily and weekly time frame, even as the index on the weekly time frame is  resisting decline. The market is at a critical zone as all eyes are on the more financials  to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that sellers are in control, as revealed by the  sentiment sentiment in the face of positive market breadth, as the index is trading below the T line and  above 50-Day Moving Average on the weekly chart.

Bearish Sectoral Indices

The sectoral indexes of the week closed in red, save for the NGX Industrial Goods that  closed 0.07% higher, while the NGX Consumer Goods index led the decliners after losing 1.18%, followed by Insurance, Energy and Banking   with 1.14% 0.33%  and 0.07% respectively.

Transactions in volume and value rose as investors and traders exchanged 2.19bn shares worth N50.67bn, compared to previous week’s 1.94bn units valued at N32.64bn. Volume was driven by Financial Services, Consumer goods and Conglomerates industry,  boosted specifically by   UBA, NB, Accesscorp, Zenith Bank and Transcorp.

Tantalizers  and FTN Cocoa were the best performing stocks for the week, after gaining 27.78% and  20% respectively, closing at N0.46 and N1.62 per share on market forces and  sentiment. On the flip side, PZ  and McNichols  lost 26.97% and 20.18% respectively, at N27.75 and N0.91per share, on  selloffs.

Outlook for the week

We expect the mixed sentiment and weak momentum to continue, as investors look to more  Q1 numbers in the face of portfolio rebalancing and expected  macroeconomic data, despite the rising inflation. Bargain hunters are also expected to take advantage of pullbacks to buy into  value and dividend stocks. As investors are watching with rapt attention.

However, retracement to the 94,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605