Investors On Nigerian Bourse Await More Earnings To Confirm Market Sentiments, Next Moves

Market Update for February 21

Trading on the floor of the Nigerian Stock Exchange on Wednesday was volatile once more, closing flat, following through the previous session, just as it proof very resilient to remain above the 42,000 level, despite the mixed sentiments during the trading session.
The NSE composite index was up pre-market, but opened higher, sustaining the momentum within the mid-morning to midday at 42,241.04 which was the day’s high, before rallying to resistance, pulled back and consolidated. It broke out in the morning and ran up into the last couple of hours when it consolidated, but held, and closed in the green column on improved volume traded but negative market breadth.

The NSE All Share index was up 9.92 at 42,158.32, which was 96.34 points off its intraday high, even as the market struggled for direction with the changing pattern as observed so far.

Investors and traders should therefore combine fundamentals of the market/companies and index/price action to manage their risk at this time, while protecting their funds.
It does seem the composite NSE index, as at close of mid-week’s trading, is forming a double bottom chart pattern that supports uptrend which would be confirmed by the outcome of Thursday’s trading. The unstable market trends after a major correction in a pre-earnings season mode reveals that news and analysis of the implications of the Central Bank of Nigeria (CBN) dividend payout policy for banks in the country, among other factors like the expected numbers may have been discounted by traders, who are now waiting for the actual figures for the next line of action. This suggests that investors should stay with value inherent stocks and companies with high possibility of growing their dividend payout. Already, the news has made Dividend Yield of some of the banks higher than periodic returns in the money and bond markets.

For example, return on the 90-day savings bond is 3.25%, while Dividend Yields of some stocks are above 4% in less than a month, despite the risk associated with equity investing. The expected actual numbers and dividend payout will determine how fund managers will play this earnings season since the period is a declaration season for December year accounts. It means that it is only this earnings reporting season and crude oil prices that can save the market from further nose-diving at this time of the year.

Market technicals for the day were mixed, with high buying pressure of 54% on high volume traded, while selling position stood at 46%. Volume index was 0.65 with money flow index at 25.60 points.
The benchmark All-Share index could only gain 9.92 points to close at 42,158.32 basis points after opening at 42,148.40bp, representing a slight growth of 0.02% on high traded volume higher than the previous day’s. Similarly, market capitalisation for the day was up by N3.57bn to close at N15.13tr, representing 0.02% value gain.

The marginal upturn in the share value of the low, medium and high cap stocks like FBNH, UBA, Dangote Flour, Flourmills, Access Bank, Guaranty Trust Bank, Zennth Bank, ETI, Dangote Sugar and Unilever impacted positively on the NSE’s Year-To-Date returns, which bounced to 10.24%, just as market capitalisation gain for the period dropped to N1.52tr, representing 11.17% YTD growth.

The All Share index and other sectorial indexes were mixed, as NSE Banking, NSE Insurance and NSE Pension closed 1.06%, 0.70% and 0.21% higher for the day respectively, while the NSE AseM remained flat. Market breadth remained negative with decliners outweighing advancers in the ratio of 30:21, volume and value for the day were up 11.75% and 15% to 570.26m shares worth N5.33bn, from previous day’s 510.28m units valued at N2.29bn.

Transaction volume for the day was considerably boosted by financial services and conglomerates stocks like Custodian Allied, FBNH, Fidelity Bank, FCMB and Transcorp which witnessed increased trading to top the activity chart as most traded.
Japual Oil and Champion Brewery topped the day’s advancers log with 5.71% and 4.81% gain to close at N0.37 and N2.83 respectively, on market forces, while Conoil and Unic Insurance topped the decliners log with 9.58% and 6.25% respectively to close at N32.10 and N0.30, on profit taking and market forces. Specifically, demand for the shares of Japaul remains in high demand arising from news of a planned buy-in by a new foreign investor and its possible entry into the mining sector, situations that could significantly change the company’s dynamics.

TODAY’S OUTLOOK
Arising from the forgoing, investors/traders are expected to change their strategies in line with the changing market pattern and reality. With the submission of audited financials by NB and Transcorp Hotels (READ) already, other early filers like Nestle, FO, Africa Prudential and Ucap are expected to hit the market in the remaining trading session of the week or early next week. We also expect short term positioning for Q4 earnings reports and volatility to continue as traders goes in and out of position at any time especially as market pattern is changing and prices are relatively low ahead of dividend season.

The relatively low interest rates in the money market and sell-off in the bond market will boost inflow into stock market as fund managers play earnings season for quick returns target high dividend yield stocks,
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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