DOWNGRADES: INVESTORS, TRADERS EXIT POSITIONS, AWAIT Q3 GDP DATA, OUTCOMEOFMPC MEETING

Market Update for the Week Ended November 17 and Outlook for Nov 20-24

Trading on the Nigerian Stock Exchange (NSE) over the past week was highly volatile and mixed in performance as investors and traders reacted negatively to Nigeria’s downgrade by Moody’s, followed by a similar action on the nation’s banks, which was blamed on the slower than expected progress in addressing structural weaknesses as reflected in government’s revenue. There are also issues around the implementation style of the budget which has consistently failed on a yearly basis to significantly impact the people positively, despite the economic recovery and marginal but positive economic data. The mixed sentiments recorded in the period revealed that selling pressure was high as market players practically dumped their shares, not mind whether such transactions were at profit and loss, as they seemingly made for the exit door, while seeking to protect their capital. At the same time also, smart investors continue to take advantage of the pullback to reposition and accumulate in some trade position, in their bid to average down.

But the stronger Q3 corporate earnings and nine consecutive months of a slow but steady decline in inflation rate, from 18.7% in January to 15.91% in October 2017, attributed to the consistent intervention by the Central Bank of Nigeria (CBN) in the foreign exchange window of the inter-bank market. This has helped to stabilize the exchange rate of the Naira against major currencies of the world, thereby boosting activities in the nation’s manufacturing sector and reducing the effect of imported inflation.

Also,agricultural produce continues to help relatively support price moderation, in addition to improving Nigeria’s external reserves, which stood at $34.33bn, while the price of crude oil remains comfortably above $60 as at last Friday, thereby triggering the reversal witnessed at Thursday’s trading session. This was sustained on Friday when it closed lower after the benchmark index had broken down through range support at 36,541.36, signaling a short term selling climax ahead of the bullish season that continues normally through December.

The pullbacks in the market will now hold at 36,482.23 if this bullish scenario unfolds as expected, suggesting that long side entries taken at or near level will generate quick profit.  More conservative players can wait until a breakout above 37,000 because this level has acted as resistance three times  since August 21, 2017.

Recall that the trend wave that started in late 2014 reached a support of higher lows as at January 2016 and rebounded before pulling back to another low to form inverted head and shoulder chart pattern that triggered the year-to-date rally.  The current symmetric triangle chart pattern formation on the index supports continuation or reversal of trend, going forward.

The bearish sentiment in the week under review short-lived the previous two consecutive weeks of bull-run to close below the psychological line of 37,000 basis points, on a high volume of trades boosted by activities in the insurance sector.

Market technicals for the period under review were mixed and negative as market breadth was negative on a high selling pressure. The volume index was 1.67, with buying pressure of 20% and 80% selling position of the total transaction as traders sell down to see the end of market reaction to the Moody’s downgrade.

The  All-Share index shed  416.70 points to close the week at 36,703.58 points, from an opening figure of 37,120.28 points, representing a 1.12% decline  after touching  a low  of 36,541.90 from a  high of 37,345.70 on a  higher volume of transactions, as traders  continued to take profit and sell down, following the Moody’s and MSCI Frontier index downgrade.

Market capitalisation for the period closed lower at N12.77trfrom the opening value of N12.85tr, representing a marginal 0.57% value loss, which would have been much more, but for the listing of new shares in the name of Unilever and Trans-nation-Wide Express, arising from their recent successful rights issue.

For the period under consideration, low cap stocks dominate the advancers’ table as a result of low price attraction and strong earnings power that is expected to drive price rally and end of the year dividend payout.

Price depreciation suffered by highly capitalized stocks during the week impacted negatively on the NSEASI’s year-to-date return to 36.57%, just as market capitalisation for the period increased to N3.56tr, representing a 37.56% gain from the year’s opening value.

The week market breadth was negative with decliners’ widening in the ratio of 43:20 on a high volume of trades that is higher than previous week’s.

Stock markets around the world closed lower despite the commodity price of crude oil trading above $60 and positive economic data that fail to offset the selling pressure as investors are taking profit ahead of market correction.

The week’s trading opened on a positive note despite the news of Moody’s downgrade, as Dangote Cement recorded value gain as the majority owner sold some shares to foreign investors. The transaction came to the rescue, as the market gained 0.52%, as situation that was short-lived, because on Tuesday and Wednesday, the index lost 0.96% and 0.91% respectively. This was however reversed on Thursday as the indicators closed marginally up with 0.05% gain, which was sustained the following day with the 0.19% gain thereby reducing the week’s loss to 1.12% lower than it opened.
The benchmark index and sectoral indices closed in the red for the period, except for the NSE Oil/Gas that notched 0.85% 

Market activities by volume and value, were up by 112.12% and 304.79% respectively at 2.8bn shares worth N54.79bn, from the previous week of 1.32bn units valued at N13.78bn.

Top performing stocks for the period were AG Leventis and Forte Oil which gained 27.77% and 10.25% respectively to top the advancers table on the strength of their low price attraction and market sentiments.

The worst performing equity for the period was Caverton which lost 21.43% at N1.32 on profit booking, while Linkage Assurance followed with 17.65% drop to close at N0.56 per share on market forces.

During the week, Nigeria Breweries’ share price was adjusted for the interim dividend of N1.00. each.

Market Outlook
This week, expect market volatility to continue as investors react to the Q3 GDP data scheduled for release by the NBS today, even as the MPC begins its two-day meeting where members would expectedly meditate on reasons for the recent downgrade of the Nigeria sovereign and its financial institutions amidst all these positive economic data. Expect traders to also take advantage of volatility and the emerging numbers for repositioning and rebalancing their portfolio ahead of year-end festive activities.

But one thing that is clear in the current market situation is: Smart investors are accumulating and enhancing their positions in selected stocks.
Again, we advise that investors allow numbers to guide their decisions while repositioning for the rest of the year trading activities, especially now that prices of stocks are looking down amidst improving economic and market fundamentals.
It is time to use your technical tools to take decision by knowing the support and resistant level to reposition or exit any position.

Investing in the stock market is in phases. You must know this in order to manage your trading and investment risk. For stocks that should be on your shopping list to buy in this oscillating market or pullbacks sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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