With Mixed NGX Index Outlook, Time To Diversify Portfolio, Protect Capital

Market Update for the Week Ended June 18 and Outlook for June 21-25

Transactions on the Nigerian Stock Exchange over the past week had mixed trend and sentiments to reflect selloffs, profit taking and repositioning by market players ahead of the quarter-end, half-year earnings reporting season. This is besides the second-half portfolio rebalancing, even as growth expectations remain intact.

At this point, market momentum and stocks are moving off their highs due to pullbacks and price adjustments for dividends from high, medium and low cap stocks that suffered losses on the first trading session of the week, recording a huge decline expected to strengthen the ongoing market recovery with funds entering the equity space on a weekly and daily time frame. 

The seeming bullish transition in the last three days of the week under review after Tuesday’s pullback signaled renewed buying interests in blue-chip and dividend paying stocks, particularly those with March year-end accounts, as well as April, May and half year reports. This is not forgetting companies with equalization and interim dividend policies, likely to declare dividend for shareholders. These factors and the conditions of corporate earnings will further boost market fundamentals.

Technically, the market remains strong and stable, creating wealth for discerning traders and investors that play the market with knowledge, tools and strategies, at a time that the NGX All-Share index, sectors and price actions of individual stocks are set to breakout different chart patterns, resistances and support levels to confirm directions ahead of earnings expectation.

The NGX index action at the end of last week formed a bearish engulfing and systematical chart pattern that supports a continuation of trend on less than average traded volume, mixed sentiments and strong momentum that show strength in the recovery move. These suggest that a pullback as expected was an indication that the market is likely to push the index above the 39,845.19bps and 40,000 mark if the renewed buying interest is sustained in the new week, ahead of the month and quarter-end.

As such, traders should trade intelligently; targeting small profit as they move with the trend, even as we remind participants that profit-taking is part and parcel of stock market.

Movement Of NSEASI

It was a mixed week of negative outing that halted two weeks of bull transition with the NGX index recording a trading session of huge decline and three up markets, even as the gains were however marginal. During the period, stocks built new trends after selloffs and profit-taking in high cap stocks like Airtel Africa, and Okomu Oil among others.

The composite index  closed 1.66% south on Tuesday, the first trading  session of the week after the June 12 democracy day holiday in Nigeria, before rebounding mildly at midweek’s session, gaining 0.13%, which was  sustained  on Thursday and Friday, when the index gained 0.15% and 0.09% respectively.  These gains were not sufficient, however, as the index stayed heavily in the read relatively, with a total loss at 1.30%, which also wiped out more than the entire 1.11% gain of the previous week.

In all, the key performance index shed 503.48 basis points, closing at 38,648.91bps from an opening level of 39,156.23bps, touching an intra-week low of 38,445.71bps from its highs of 39,165.13bps on selloffs in high cap and blue-chip stocks. Within the same period, market capitalization lost all of N238bn, closing at N20.13tr, compared to previous week’s N20.41tr, which also represented a 1.30% depreciation in value.

The week’s advancers’ table was dominated by low and medium cap stocks, amidst portfolio repositioning as investors continue to digest emerging economic data, ahead of the Q2 earnings season. Also, trading and price actions reveal the presence of smart money in the market, which impacted positively on the sectorial indexes, with four sectors closing higher, despite price adjustment in two companies. They are: UACN and C & I Leasing, following the dividends declared by their boards.

The decline, notwithstanding, the week recorded a positive breadth with gainers outnumbering losers in the ratio of 38:25 on 73% selling volume and 27% buy position, just as Money Flow Index looked up, reading 50.37bps, from the previous week’s 48.69 points. This is an indication that funds continue flowing into the equity, space despite the down market. 

NSEASI WEEKLY CHART MOVEMENT

The systematic triangle-chart pattern formation of the NGX Index action supports a continuation of the trend, depending on market forces in this new week. The candlestick is yet to give any signal on a weekly chart.

This is happening at a time crude oil is selling above $72 per barrel at the international market, as more economies reopen for business activities while the Covid-19 vaccination is on top gear at the global and domestic levels. There is also the impact of positive economic data from U.S and China that would support oil prices.

Bullish Sectoral Indices

Performance indexes across the sectors were up, except for the NGX Industrial goods index that closed 0.05% lower, while the NGX Banking led the advancers, after gaining 1.09%, followed by Oil/Gas, Insurance and Consumer Goods that closed 1.05%, 0.76% and 0.25% higher respectively.

The general market’s outlook remains mixed in the short and long-term, following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, you should do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

Activities in volume and value terms were down as investors traded 981.15m shares worth N10.38bn, compared to the previous week’s 1.06bn units valued at N12.83bn, with volume driven by trades in Financial Services, Consumer goods and ICT sectors, particularly Sterling Bank, Zenith Bank, Fidelity Bank, FBNH and Transcrop.

Berger Paints and Lasaco Assurance were the best performing stocks for the week after gaining 14.93% and 10.29% respectively, and closing at N7.70 and N1.50 per share on market forces and half year earnings expectation. On the other hand, UACN and Airtel Africa lost 11.01% and 10% respectively, at N9.70and N753.30 per share, on price adjustment and selloffs.

Market Outlook

We expect mixed performance on accumulation and portfolio readjustments on the recent pullback as all eyes are on the month and quarter-end window dressing ahead of full-year and Q2 corporate earnings, in the face of rising fixed income market yields.

Any breakout at this point offers new entry opportunities for traders and investors to reposition in value-laden underpriced growth stocks, while companies with March year-end accounts release their audited full-year numbers to support recovery. This is based on the fact that the rise in fixed income yields may not be enough to scare all investors away from the equity market.

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 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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  2. Combining Technical Indicators & Tools With Higher Time Frame To Initiate, Manage Trades Mr Abdul-Rasheed OshomaMomoh, Head Capital Market at Trw Stockbrokers Ltd 
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CRO|Investdata Consulting Ltd

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Tel: 08028164085, 08179547605