Mixed Trend May Linger, As NGSE Index Confirms Next Market Direction

Market Update for June 10, 2020

Midweek’s trading on the Nigerian Stock Exchange (NSE) was mixed and volatile, closing lower on mixed sentiments that reveal a saturated market at its overbought region after piling up to consolidate and side-trend, completing the markup cycle which ushers in the distribution phrase.

Looking at the daily chart below and  market psychology, this buying euphoria at the  peak of a bear market rally call for cautious trading at the NSE’s top and resistance level, ahead of the Q2 corporate earnings season. This has triggered a revaluation of equity assets, factoring in the expected weak earnings from listed companies, small businesses and individuals.  

As noted earlier, equity price correction or pullback is underway to support and make the recovery market stronger.

Understanding the stock market and its potential through the use of technical analysis and historical price events has been proven repeatedly to outperform all forms of fundamental analysis trading style. Making money in today’s market requires an effective combination of technical and fundamental analyses tools.

Meanwhile, Wednesday’s trading opened marginally on the upside, before pulling back between midday and afternoon on profit taking that pushed the All-Share Index to an intraday low of 25,130.61 basis points, from a high of 25,351.29bps. Thereafter, the day finished lower at 25,215.bps on a low traded volume.

Midweek’s market technicals were negative and mixed, while volume traded was lower than the previous session’s, in the midst of a flat breadth and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 38% and sell volume of 62%. Total daily transaction volume index stood at 0.90, just as the momentum behind the day’s performance stayed strong, with Money Flow Index reading 83.38 points, dropping from the previous 89.41ps. This indicates that funds are leaving the market on profit taking.

Index and Market Caps

At the close of midweek’s trading, the benchmark NSEASI shed 120.11bps, closing at 25,215.04ps, from the 25,335.15bps it opened, representing a 0.47% decline, while market capitalisation lost by N62bn to N13.15tr from an opening value of N13.22tr, representing a 0.47% value loss in investors’ portfolios.

The day’s decline resulted from losses suffered by medium and high cap stocks like BUA Cement, Zenith Bank, Stanbic IBTC, Dangote Sugar, Guinness Nigeria, Ecobank Transnational Incorporated, UACN, GSK, C & I Leasing, and Vita Foam. This impacted negatively on the NSE’s benchmark index, reducing the NSE’s Year-To-Date loss to 6.08%, while market capitalization YTD gains stood at N210.13bn, representing a 1.64% up from the year’s opening level.

Mixed Sector Indices

The sectoral performance indices were largely bearish, except for the NSE Insurance and Oil/gas indexes that closed 1.44% and 0.20% higher respectively, while the NSE Industrial Goods index led the decliners after losing 2.54%, followed by the NSE Consumer Goods and Banking with 0.27% and 0.14% respectively.

Market breadth was flat as there an equal number of decliners and advancers in the ratio of 19:19, while activities in volume and value terms stayed mixed with volume traded sliding down by 0.76% to 266.65m shares from the previous day’s 268.74m units, while value rose by 183.9% to N3.18bn from Tuesday’s N1.12bn. The day’s volume was driven by trades in Guaranty Trust Bank, Mutual Benefits Assurance, FBNH, Japaul Oil and Zenith Bank

Berger Paints and Prestige Assurance were the best performing stocks of the day, after gaining 10% each, closing at N7.70 and N0.77 per share respectively on market sentiments and positive numbers. On the flip side, C & I Leasing and UACN lost 9.41% and 9.09% respectively, closing at N4.80 and N7.50 per share respectively on market forces and profit taking.

Market Outlook

The mixed trend is likely to continue as the NSE index looks to confirm the next market direction, despite profit taking as investors continue taking positioning. MACD crossing down the signal line to bearish region indicates pullback or sell down. This also implies that opportunities are still available as sectorial rotation continues ahead of the Q2 earnings reports start hitting the market.  Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for consideration ahead of the Q2 economic and corporate data.  

While investors digest the impact of the MPR cut from 13.5%, corporate earnings and economic activities, the MFI is showing improved institutional investors activity in the midst of the oscillating oil prices, amidst the rising new cases of the Coronavirus with the cases crossing 10,000 and deaths above 280.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation going forward.

 Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

Ambrose Omordion

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