Expect Profit Taking Slowdown, As Volatility, Portfolio Rebalancing Linger Ahead Of Financials

Market Update for January 24

The Nigeria stock market on Wednesday had a down market to continue in its highly volatile and correction mode on a declining volume of trades and losing momentum as the indicators sought support ahead of the coming earnings reporting season.
The resultant panic selling and profit taking is expected to give the market a rally balance after the correction, with wave 4 decline giving rise to 5 extension wave when there is a reversal which we expect the market will do depending on the strength of the expected numbers and payout ratios, relative to the current price of equities on the exchange.

In the early hours of Wednesday’s trading, the index popped to a low of 43,092.87 basis points after losing more than 1000 points between mid-morning and midday, before reducing the losing streak by afternoon when high cap stocks like Dangote Cement, Nigerian Breweries, Nestle and Lafarge Africa inched up in value to save the market from the huge loss of over 2.5% in just one day. The afternoon rally reduced the losing positions of first-tier banking stocks while their second-tier peers finished in high to close the day trading.

Market technicality for the daily was weak despite the increase in buying pressure from 55% in the previous day to 67%, as selling position equally fell to 33% from Tuesday’s 45%. Volume index recorded 0.67 of the day’s total transaction, reflecting improving positive sentiments, irrespective of profit taking activities and institutional money flow index that continued to look down.

Meanwhile, the composite NSE All-Share index shed 426.45 points to close at 43,963.40 basis points after opening at 44,389.85, representing a decline of 0.96% on a relatively high traded volume which was however lower than the previous day’s levels. Similarly, market capitalisation for the day went down by N143.04bn to close at N15.76tr, after opening at N15.9tr, also representing 0.90% value loss in investors’ positions.
The downturn suffered by Unilever, Dangote Sugar, Dangote Flour, Julius Berger, Ecobank Transnational Incorporated, UBN, UBA, Access Bank, Zenith Bank , FBNH and others impacted negatively on the NSE’s Year-To-Date returns, which dropped to 14.96%, just as market capitalisation gain for the period dropped to N2.15tr, representing 15.80% YTD growth.

All Share Index and all sectorial indices closed lower, except for the NSE Consumer Goods, NSE Industrial Goods and NSE Lotus indexes that closed higher with 0.47%, 0.48% and 0.09% respectively, while the NSE AseM remained flat. Market breadth remained negative as decliners outpaced advancers in the ratio of 43:13 to continue the bearish run.

Market activities in volume and value terms for the day were down by 27.30% and 32.44% respectively to 536.43m shares worth N5.18bn from previous day’s 737.86m units valued at N7.67bn. Transaction volume for the day was considerably boosted by stocks in conglomerates and financial services sector, as Transcorp, Skye Bank, FBNH, Unity Bank and FCMB continued to witness increased trading volume to top the activity chart as most traded.

Best performing stocks for the day were May&Baker and Transnationwide Express topped the advancers table, with 4.95% and 4.00% respectively to close at N2.97 and N0.78 each, on market forces. FCMB and Diamond Bank were the worst performing for the day, losing 9.71% and 9.60% to close at N3.07 and N2.92 respectively, due to profit taking from both the banks’ recent rally.

TODAY OUTLOOK

We expect profit taking to start slowing down, while volatility continues due to portfolio reshuffling and repositioning for the expected quarterly and full year reports that is underway, just as the energy behind money flow index remains weak.
However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season that dividend payment is approaching.

We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. Market is in phases know the cycles in order to manage your trading and investing risk. For stocks that should be on your shopping list to buy in this seasonality changes as the year winds down, sign up to INVESTDATA BUY AND SELL signal setup by calling 08028164085.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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