NSE RETRACES AS INVESTORS REPOSITION AMIDST SMART MONEY

The nation’s equity market, during the week, experienced a mixed sentiment to close lower, halting the six-week rally on massive sell-offs by profit takers after the holiday declared by the Federal Government to mark the May 29 Democracy Day. 

The two-day pull back created opportunities for new positioning which attracted smart money and other investors and enabled a reversal of the down trend on good volume, especially in banking stocks that suffered the initial losses. The increasing daily trade momentum recorded in the last two trading sessions of the week were driven by rebound in shares of financial services providers. The recent market recovery was based on expectations rather than improved economic fundamentals, meaning that oscillating trend will remain in the market until meaningful changes start manifesting in the system to reflect on the economic indices to support stability in equity prices.  

The composite index NSEASI shed 1267.83 points to close at 27,634.42 from an opening figure of 28,902.25, representing a 4.40 percent decline, as traders and speculative investors cashed out their gains from the recent rally. Similarly, market capitalization for the period closed lower at N9.49 trillion from an opening value of N9.93 trillion.This reduced the year to date negative return of the benchmark index to 3.52 percent and that of market capitalization for same period to N454.56 billion. The market breadth finished negative and bearish for the week as decliners outnumbered advancers in the ratio of 60:12.

Meanwhile, the international markets went in the same direction as the local course to close sharply lower for  the week under review, despite the up market  witnessed in U.S,  which resulted from improving commodity prices, especially that of crude oil and postponement of interest rate hike to December so as not to deflate its economic recovery move. This delay in rate increase was due to disappointing corporate results and job related problems that were revealed in the recently released data. Markets in Germany, Japan and UK were down as traders and investors were cautious. 

In Europe, the EU Central Bank at its Thursday meeting kept interest rates unchanged as widely expected in order to check inflation and support the economic recovery process with the ongoing restructuring in the system. Japan also has delayed tax hike in its economic reform policy, due to weak economic growth. China's economic recovery and restructuring are yet to influence its equity market. 

Back home, the leading performance index, the NSEASI, opened the week trending southwards after which it fell  4.26 percent on the first day and continued in that same direction for the following trading session when it shed 2.75 percent. There was however a rebound in the third and fourth trading sessions with 1.02 and 1.66 percent recoveries respectively.The benchmark NSEASI and all other sectoral indices closed in the redto reflect the selling pressure by profit takers across board. 

The weekly transaction levels, measured by aggregate volume and value, declined by 49 percent and 14 percent respectively in contrast to the previous week’s closing levels. In the week under review, a total of 1.25billion shares valued at N11.27billion were exchanged in 17,054 deals compared to 2.45billion shares valued at N13.15 billion exchanged in 23,297 deals in the previous trading week. See the technical position of market below

NSEASI WEEKLY TIME FRAME

Technically, the market still remained somewhat bullish on a weekly basis since it is trading above the short moving averages of 20 and 50 day to close 27,634.48, after touching a high of 28,907.56 and low of 26,446.96 respectively within the weekly time frame, before succumbing to the double top reversal chart pattern formation in late May to pullback on strong resistance level of December31, 2015. Also the market failed to breakout it recently formed bullish channel, confirming some weakness at that level.

The market's recovery to its opening point for the year 2016 before the stop and reversal, is a good omen, even while it was not as a result of improved economic fundamentals but based on expectations. This means that traders and speculative investors should master the act of trading pull backs, as the oscillating trend will remain in the market until meaningful changes start to manifest in the system to reflect on the economic indices that would support stability.

However, the seeming positive sentiment in the market after the pull back is good if it will be supported by strong market forces and confidence that government would faithfully implement the budget, amidst other stimulus packages expected to jump start the economy again. 

Looking at other technical indicators, the NSEASI closed below the upper band by 8.5%. During the past 10 bars, there have been 6 white candles and 4 black candles leaving a net of 2 white candles. During the past 50 bars, there have been 23 white candles and 27 black candles with a net of 4 black candles. MACD is still bullish since it is trading above its signal line.The MACD crossed above its signal line 13 periods ago.  Since the MACD crossed its moving average, the NSE index's price has increased 7.03% and has ranged from a high of 29,125.78 to a low of 24,181.51. RSI is reading 55.70 and appears to be neutral, while MACD remains bullish since late April. Stochastic Oscillator and CCI are reading over-bought with sell signals. Money flow index is indicating entrance of funds into the market as at close of trading last Friday.

During the week under review, the share prices of the following companies: Aluminum Extrusion, Julius Berger, Chemical & Allied Products, e-Tranzact and Boc Gases were adjusted for dividends as approved by the shaholders. 

Also, five companies released their quarterly earnings, while three released full-year figures. They are: Cadbury, Abbey Building, Equity Assurance, Greif Nigeria, Avon Crowncaps and Fortis Microfinance. Cadbury and e-Transzact led the advancers chart with 21.66 and 17.37 percent gain respectively, while the flip side was topped by Oando and Neimeth Pharmaceutical, which suffered 17.87 and 15.05 per cent decline respectively.

Market Outlook

The market is likely to experience mixed performance as the recent retracement of stock prices will lead to short profit taking this week as traders, fund managers and brokers that took position last Thursday on low prices of that day will likely sell, if between 10 to 15 per cent capital gain is achieved. Consequently, any new positioning at this level of reversal in trend should be in stages, until there is breakout of the current resistance level that will usher in another strong rally.

Buying in stages means that if you have N500,000 to invest in a stock for now, just buy N150,000 worth of that stock and watch market trend and the stock's direction 

STOCKS TO WATCH

Access Bank, UBA, Oando, Eterna, FCMB, Zenith Bank, Livestock, Transcorp, 7-Up, Custodian & Allied, African Prudential and Tigerbrand