Reversal Imminent As Profit Taking Moderates, Portfolio Rebalancing Continues

Market Update for January 25

Nigeria’s stock market on Thursday continued suffered its back-to-back loss for the fourth trading sessions on a very high intraday volatility to reflect the lingering profit booking amid repositioning by smart money and reshuffling of portfolios by investors in preparation for the Q3 and full-year earnings reporting season that is just by the corner. The mixed sentiments at the close of trading indicates a gradual easing of selling pressure as expected dividend paying stocks with strong fundamentals experience reversal after attaining their new support levels, a sign that the current market decline is coming to an end.

This is however with a caveat that the expected 2017 full-year earnings reports beat market expectations, given that the huge robust investors’ outlook has already been factored into equity prices before now.
Furthermore, the ongoing market correction is already revealing buying opportunities as the fundamental strength of these companies support higher payout at full-year, knowing that 80% of the factors that influence stock prices (the market and economic fundamentals, which comes in form of liquidity and positive economic data) are still intact in the Nigerian market. The remaining 20% comes from company fundamental and earnings performance, both of which would become evident soon to trigger an uptrend, should the earnings be surprising and above expectation or appropriate sanctions if such numbers are in the opposite direction.

The NSE Index was resisting a breakdown of its support level at 43,000 basis points and the technicals came back to mixed position for the day, but as trading volume continues to decline daily it is a signal that reversal is imminent.
Thursday’s trading session began with the index dropping pre-opening, it did pop at the opening, before pulling back to test the intraday low of 43,106.26, but when the test was successful, the indices ramped up to a high of 43,995.68, before closing lower at 43,529.06 on a relatively high volume that is marginally above the recent market average traded volume.
The day’s buying pressure was 48% and selling position, 52%. Volume index recorded 0.64 of the day’s total transaction, to reflect the mixed sentiments, despite profit taking activities and institutional money flow index that continued to look down in the same direction with volume.
The Nigerian Stock Exchange (NSE) All-Share index for the day shed 434.34 points to close at 43,529.06 basis points after opening at 43,963.40, representing a decline of 0.99% on a relatively high traded volume which was however marginally lower than the Wednesday ’s. Similarly, market capitalisation for the day lost N155.7bn to close at N15.6tr, after opening at N15.76tr, also representing 0.99% depreciation in investors’ portfolios.

The losses suffered by highly capitalized stocks like Dangote Cement, Lafarge Africa, GTBank, Unilever, Ecobank Transnational Incorporated, Stanbic IBTC, Guinness Nigeria, PZ, Forte Oil, UACN, FCMB and others impacted negatively on the NSE’s Year-To-Date returns, which dropped to 13.82%, just as market capitalisation gain for the period reduced to N1.99tr, representing 14.65% YTD growth.
Just like the benchmark index, all sectorial indices closed in the red, except for the NSE Consumer Goods and NSE Oil/Gas indexes which chalked 0.72% and 0.31% respectively, while the NSE AseM continues to remain flat. Market breadth remained negative as decliners outpaced advancers in the ratio of 30:21 to continue the down market.

Market activities in volume and value terms for the day were mixed as volume was down marginally by 6.63% to 500.85m shares from the previous day’s 536.43m units, while value was up by 27.98% to N6.63bn from N5.18bn on Wednesday. Transaction volume for the day was considerably boosted by stocks in the conglomerates and financial services sector, as Transcorp, Fidelity Bank, Zenith Bank, Access Bank and UBA continued to witness increased trading volume to top the activity chart as most traded.

Dangote Sugar and Africa Prudential topped the advancers table, with 10.16% and 4.24% respectively to close at N22.01 and N4.43 each, on full year expectation and possibility of dividend payout. GSK and Caverton topped the decliners log for the day, losing 9.67% and 9.41% to close at N18.90 and N2.31 respectively, purely on profit taking.

TODAY OUTLOOK

Being the last trading day of the week, we expect profit taking, but on a moderate scale, since the market had been red all week-long, while volatility continues due to portfolio reshuffling and repositioning for the expected quarterly and full year reports that is underway. It is important to note that the candlestick formation at the close yesterday’s trading supports an imminent reversal.
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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