MARKET UPDATE FOR WEEK ENDED JANUARY 19 AND OUTLOOK FOR JAN 22-26

WHY FUNDAMENTALLY SOUND STOCKS, AMIDST IMMINENT EARNINGS RELEASE, PROFIT TAKING

Equity prices and market indexes continued to galloped higher over the first three trading weeks of the year despite the profit booking and concerns for correction before the 2017 dividend declaration earnings reporting season that will earnestly kick off any moment in February while March year-end account Q3 earnings reports are underway as the first month of 2018 is gradually drawing down.  The state of these Q3 numbers will determine if the tested 45,000 psychological line resistance  breakout will be sustained or trigger the pullbacks that have been expected from different quarters which they say it will confirm the healthiness of the bullish market. Despite this expected correction, the market had continue to ride on strong  wave 3 or 5 extension wave depending on how you are reading the waves with index and volume intact looking up no diversion yet as at last week. 

The continued decline of the inflation rate for straight eleven months on the strength of central bank continue intervention in the fx market that had boosted activity in manufacturing sector and agricultural produce long value chain had relatively reduce the hyper movement of farm produces prices and  kept prices a beat stable.  The relatively low valuations currently in the market despite the ongoing rally was due to strong quarterly numbers that still kept the market P/E ratio below 16.58x that make the market attractive, were many market in Africa and develop markets are having P/E ratios above 20 times of their market earnings. The S&P 500 P/E ratio spiked to 26.17x last week, which is its highest level since the 2007-2008 financial crisis.

The period under review had a strong and positive technicals with high volatility on rallying prices and volume to revealed strong momentum ahead of earnings season expectations irrespective of profit taking and fear of sustainability of the ongoing rally.  The weekly buying pressure at 98% and selling volume of 2%, while the period volume index was 2.78 of total transaction. As mentioned earlier, the market index breakout it psychological line of 45,000 point after touching new 52 week highs of 45,162.64 from the low of 42,262.82 basis points. On a positive market breadth that reflects increasing demand for stocks.

The benchmark index gained 2,193.93 points to close at 42,898.90 points, from an opening figure of 42,898.90 points, representing a 5.11% growth on a huge volume, which was marginally higher than previous week’s. These transactions were driven by activities especially in financial services and conglomerate sectors. Similarly, market capitalisation for the period closed higher at N16.15 trillion from the opening value of N14.92 trillion, representing a 5.11% value appreciation in in investors’ portfolios.

The second tier banking stocks during week dominated the topped advancers table as simple  triple trading conduction for trading a breakout or uptrend were present with high volatility, rising price and volume occurred as these low cap stocks were rallying.  Profit taking at this point is inevitable as prices had rallied high to the level that many company payout for the expected 2017 full year earnings may not support some company’s prices and good dividend yield relative to current prices. But, when compare to other investment window especially the money market remain attractive due to the shorter time advantage of playing dividend income strategy during the earnings season.

The bullish sentiment continue in the week under consideration, as the market indices were hitting new highs due to traders and investors  positioning for the expected numbers, with much funds driving low, medium and high cap stocks high which  impacted positively on the NSE ASI’s year-to-date return to 17.91%. Market capitalisation for the period grew by N2.84 trillion, representing a 18.70% gain from the year’s opening value.

Market breadth for the week was also positive with the advancers’ outnumbering decliners in the ratio of 40:32 on a huge volume of trades to keep three weeks bull market running.

Stock markets around the world were mixed over the past week, as key influencers like Central banks, oil, crypto-mania, inflation, geopolitical risk which includes North Korea continued threats that had started to shape the global economy outlook in 2018.   In the U.S, the gradual rising in inflation, in the mix of Tax cut, high equity valuations and concerns over government shutdown.  In addition to recent hike in interest rate, the expected correction since the equity continue  new all-time high is inevitable as international funds managers are focusing on emerging and Fortier markets for higher returns despite the risk associated with such returns.     In Europe stock markets rose to their highest levels since 2008 amid growing confidence in corporate earnings and the strength of the global economy. In Asia, Japan upgrdaded its assessment of the economy for the first time in seven months amid a rise in consumer spending, its central bank hopes that the increase in spending will translate to a pickup in inflation this year.  

Back home, All Share Index opened the week on a positive light, gaining 0.51% to reverse  the previous trading session’s down market, which was sustained on the second trading day with a 2.17% notch. This uptrend was consolidated at the third trading day with 1.89% gain but slide down marginally on Thursday with the index losing 0.09% as a result of selling pressure, which rebounded  on Friday with 0.55% northward movement, bring the week total gain of 5.11% despite profit taking and panic selling.  

The NSE index and all sectoral indices closed in green for the period, except for NSE Consumer Goods that was in red of 1.31% while NSE AseM was flat for the week.  the finanical sector topped the index performance chart with 8.50% in just one week

Market activities for the week, in terms of volume and value were down by 0.20% and 33.57% respectively to 5.01 billion shares worth N45.82 billion from the previous week’s 5.02 units valued at N68.97 billion.

At the end of third week trading session of the year, Skye Bank and Unity Bank were the best performing stocks with of  gained 53.57% and 48.10% respectively to close at N1.29 and N1.22 per share, due to bullish momentum that is driving both the good and bad, Skye Bank as we speak had not released its 2016 financials not to talk of 2017 quarterly reports to its status, investors should be wary of such investment while Unity Bank is here non there since it share reconstruction that moved it price to N5 but later came back to 0.50 kobo, no dividend all this while despite reducing it share outstanding.     

The worst performing equity for the period were Consumer goods due to massive profit taking to dominate the  topped decliners, as National Salt  lost 13.64% to close at N19.00 on profit taking; followed by AG Levetis  12% slide  to close at N0.66, short traders in the stock quickly took profit.   

Market Outlook
In this new week, we expect volatility and profit taking to continue in the midst of actual Q3 numbers hitting the market with surprise or disappointing reports.  MPC meeting holding this week is still under probability, as the committee members to vote are not compete due to retirement members and newly appointed once are yet to be approved by Senate.  
However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season when 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 08032055467.

Get your home study pack on INVEST 2018 Traders & Investors Summit and ride with the current recovery on Nigeria’s stock market and economy. By investing and trading knowledgeable. You can also still access stocks analysed in the home study pack of the INVEST 2018 traders & investors summit, which includes 15 stocks pick for 2018 are available now to guide your positioning as trading for the year just started.

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Ambrose Omordion

CRO | Investdata Consulting Ltd

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