STOCKS PULLBACK AMIDST IMPRESSIVE Q3 CORPORATE EARNINGS, PROFIT TAKING.

Last week was a very busy one on the Nigerian Stock Exchange (NSE), with over 15 corporate earnings reports hitting the market, many of which were impressive numbers to which the market is yet to react in the form of price performance. The rush to present quarterly financials is based on the fact that figures for third quarter earnings are statutorily expected to hit the market before end of October 31, 2017, in line with the post-listing requirements of the NSE.

The delayed response by the market may not be unconnected with the fact that this is a season of mixed sentiments as revealed by the low volume of trades, when compared to the previous week. 

It is however expected that this earnings which beat market expectations will attract increased demand as investors and analysts interpret these numbers, given the importance attached to third quarter earnings score-cards, as they foretell the possible outlook for any company in equity investment and fiscal financial year as the year winds down. By third quarter, investors would have started to form opinions about whether or not to expect returns in the form of dividend/bonus shares at all, or whether the payout would be same as last year or higher, and of course capital appreciation at the full year earnings season in March of following year.

 For the NSE, March is the most significant earnings reporting season because most companies have December year-end and therefore influence demand for stocks especially as factors such as the improving economic data, liquidity in the forex market and others like the hope of Nigeria reclassification into the Morgan Stanley Capital International (MSCI) emerging market index next month. This is likely to attract more foreign fund managers to look the way of Nigeria, while supporting market thereby enhancing the recovery, pushing the NSE’s benchmark All-Share index to breakout a 52-week high.

That notwithstanding, the current sentiment in the market may likely reverse up as the earnings reporting season enters its peak after the profit taking the forced share prices down in the wait for third quarter earnings reports.

Traders should know the position of stocks relative to their industry fundamental data and behavioral patterns before executing any trade at this point when the market is foot dragging in response to the positive numbers released so far.

    UBA

United Bank for Africa had trended down for four years now. From a N10.56 high on June 14, 2013 after its house-keeping leading to the cleaning of cobwebs in the form of non-performing loans from its books to start afresh, the group has so far been able to sustain. This was despite different attempts at rebound that failed, before touching the low of N2.77 in February 2016, followed by a rebound to breakout the yellow down trend line in December 2016 when it formed a bullish channel on the strength of its improving profitability as well as fundamentals that attracted positive sentiment for the bank since the beginning of this year 2017.  Price action has now improved into a rising channel pattern with first support level at N8.64 and second at N8.42 as it is set to offer a low risk trade entry point. But with Friday’s candlestick formation pattern, reversal of the trend is imminent as the bank’s robust balance sheet and earnings power is expected to drive price and payout.

    ACCESS BANK

Access Bank’s price action was in a falling channel for a period of four years with different attempts at rebound within the channel from a high of N12.88 on February 8, 2013, before following the general market direction to a low of N3.60 on April 22, 2016, despite the bank’s strong fundamentals and impressive numbers posted within period. It rebounded on the back of positive sentiments by the investing community, arising from the bank’s high margin of safety to form a rising channel even as its share price continued to gallop on a bullish trend and strong numbers.  

The recent pullback from a resistance level of N10.89 as a result of profit taking and general market decline to first find support at N9.30 and second at N8.70, it offered a low risk trade entry during the last pullback. The bank’s price action was again within the rising channel, forming a symmetrical triangle that supports continuation of trend or reversal, especially now that their financials are expected in the market within the next eight days.  The trending ability and direction for daily and weekly is mixed as ADX is trading below 20 and above 50 respectively, MFI is looking down to indicate that funds are exiting the stock, while RSI is reading 55.33, an indication of relative strength, which however calls for caution among traders while investors can take position for the long-term.

    ZENITH BANK

Zenith Bank’s trendy nature a situation that has made it a trader-friendly stock, hit its highest in the last last days of 2013, at N27, which has remained its resistance level for four years after  dropping to an all-time low of N10.35 on April 15, 2016 with good trending movement, being a volatile stock that made money for traders. With its outstanding performance, the bank continues to grow earnings on quarterly and yearly basis, a situation that supports price oscillation, creating room for accumulation.  

It bounced back to N25.45 in June 6, 2014 and N25.48 in April the following year, before finally rebounding on April 22, 2016, with price action forming a rising channel pattern. This broke-out of the yellow resistant trend line in July 21, 2017 on a positive market sentiment to 52 week high of N26.99 before pulling back on profit taking and rebounded again to N26.55 recently to form a double top that support reversal of trend. This has been helped by the bank’s profitability and investment ratios that remain attractive to drive future rally on positive sentiment on its strong numbers.  Trending momentum and ability on daily and weekly time frame are strong as ADX is above 20 on both time frames. MFI is strongly looking up to indicate funds entering the stock, as RSI is reading 68.34. 

    TRANSCORP

Transcorp posted a four-year high at N7.60 per unit in 2014, before it slumped to N0.72 in March 2017 after various attempts to rebound that failed.  it reversed  from the down trend to kick-off recovery as buyers interest were on it low price, as well as ongoing reforms in Nigeria’s power sector where it plays, after posting negative earnings in recent years that pushed down it share price. The company is expanding its generation capacity to increase quantum of power released to the National Grid and power supply across the country which has started yielding result as reflected in the nine-month result recently released to the market. 

The stock finally bottomed out at N1.34 in October 2017 to enter an uptrend as it broke out the yellow down trend line. This positive sentiment is driven by positive earnings as shown in the Q3 numbers and indeed the expected 2017 full-year report.  

Price action has formed a cup and handle that supports an uptrend with first resistant level at N1.66 and second  level at N1.78, as RSI is reading 58.25, which is RELATIVELY strong.

    GUARANTY TRUST BANK

Guaranty Trust Bank’s price action has formed a double top chart pattern that supports reversal of uptrend after touching five-year high of N42 before pulling back to N38 and thereafter retracing up to N42 last week, indicating resistant level that slowed down the rally as shown in the bank’s financials released recently, which was below market expectation and might affect the positive sentiment the bank had enjoyed before now.

Pullback could reach N38 or below, which may offer a low risk buy opportunity, as Q3 earnings reporting season continues on Monday.  The stock had steadily rallied from N14.10 in 2012 to a high of N31.31 on June 20, 2014, before pulling back to form a double top on April 2, 2105, at N31.88 per share and down trending to a low of N13.99 in April 2016 and then a rise that since then has been sustained till N42, despite pullbacks within the rising channel due to its strong numbers and leadership in cost management in its industry. RSI is reading 68.98 which indicate overbought region. MFI is still looking up to show that funds are entering the stock despite all momentum indicators are signaling sell.

    DANGOTE CEMENT

Dangote Cement rallied to test an all-time high of N250 in June 27, 2014, from where it entered a steep downtrend that continued into the second quarter of 2017, touching low of N122.90 in February 2016 before retracing back to breakout the symmetrical triangle pattern formed earlier by the price action at N203 per share, to continue the uptrend to 52 week high at N245 before pulling back. The possibility of breakout of the resistant level at N250 is high. Traders should wait for a pullback before jumping in to take position while investors should accumulate.  RSI is reading 58.81 which signal strength but MACD is bearish. At the same time MFI is looking down to show funds are leaving the stock, but with the positive Q3 earnings position, reversal is imminent. Watch Out.