Caution On NSE, Amidst Sustained Decline Despite Earnings Season Peak

Mid-week’s trading session on the Nigerian Stock Exchange (NSE) had a very hard roll over on the major support level to the downside, following through the four-day downtrend as a result of the persisting sell-offs to close the session lower on a high traded volume. It was a session that dragged the market deeper into the bearish zone as the NSE Index dropped at the opening, rallied back to intraday highs of 41,280.46 resistance level, but could not get through, came down and made lower-lows to breakdown the psychological line of 41,000 which had been an inflection point.

The NSE trading board was mixed, but mostly red as the highly capitalized stocks shed value, despite their impressive financials and high dividend payout for the 2017 financial year. The NSE All-Share index broke down the yellow trend line, confirming that the market has just entered its long bearish mode, since the full year earnings season has not influenced equity prices positively or supported market value. This further shows that not even the 2018 Q1 numbers will do much as per impacting the market, since liquidity is not flowing into the market. Rather, the Nigerian market is experiencing a liquidity squeeze as revealed by institutional money flow index of the NSE.

The recent performance of both the international and locally markets show that there is a clear divergent between the equity market and crude oil price movement. Before now, oil price movement had been linked to equity market movement, unlike the present situation when oil prices are looking up while equity markets globally are going south. All of these are happening despite the growth being experienced in the world economy and recovery being experienced here in Nigeria.
As Wednesday’s trading session had broken down the strong support level at this point, we advise cautious trading and positioning even when changing strategy to invest for dividend income.

The day’s technical positions were negative and mixed, as traded volume was high on a selling pressure of 90%. Market breadth was negative, signaling negative sentiment at the conclusion of a major earnings reporting season and end of first quarter and irrespective of strong numbers and high dividend payout. The NSE indicators continued to slide, gradually wiping away all the recorded gains before now. Volume index was 1.16 with money flow index momentum looking down at 37.12 points, from the previous day’s 38.46 points.
Meanwhile, the composite index NSE ASI shed 441.16 points to close at 40.802.08 basis points after opening at 41,243.24 bp, representing a 1.1% decline on a high volume that was higher than the previous day’s.

Similarly, market capitalisation for the day went down by N159.37bn to close at N14.74tr from an opening value of N14.9tr which also represented a 1.1% value loss, which further dragged investors’ position into red.
The continue downturn is attributed to selling pressure and profit booking on medium and high cap stocks like Dangote Cement, NB, Total Nigeria, GTBank, Access Bank, UBA, Zenith Bank, Fidelity, ETI, Flourmills and Dangote Sugar which impacted negatively on the NSE’s Year-To-Date returns, which contracted to 6.69%, just as market capitalisation gains for the period reduced to N1.13tr, representing a 8.31% YTD growth.

The sectorial performance indexes were lower in the same direction with the general market index except for NSE Consumer Goods that closed higher. Market breadth for the day remained negative also as decliners dominated advancers in the ratio of 29:18.
Market activities were mixed as volume traded was up 51.6% to 535.19m from the previous day’s 352.89m units, while value traded dropped by 11.7% to N3.66bn from Tuesday’s value of N5.13bn.

Transaction volume was boosted by financial services and consumer goods stocks like: Champion Brewery, Skye Bank, Sterling Bank, FBNH and LASACO Insurance, which witnessed increased trading to top the activity chart.
GSK and Wema Bank were the best performing stocks that topped the advancers’ table, after gaining 10.00% and 9.4% respectively to close at N34.00 and N0.93 on the back of strong dividend yields and market forces, while Japaul Oil and Mutual Benefits were the worst performers after losing 8.5% and 5.4% to close at N0.65 and N0.35 respectively on profit taking and market forces.
During the trading session, AXA Mansard released its 2017 full-year results, proposing a final dividend of N0.06.

Market Outlook

Despite the continued bearish mode of the market, we expect a rebound, being the last trading day quarter and expiration day of the 90-day statutory period for companies with December year-end to release their audited accounts, expect more earnings reports to the market, ahead of first quarter economic data and corporate earnings which would give the health status of the economy and the companies so far in 2018. With more income investors taking position in value and dividend paying stocks, alongside bargain hunters, we expect next week’s MPC meeting to give direction of the interest rate as inflation continues to decline, thereby further driving the economic recovery and flow of funds.
Also, expect repositioning to continue, while profit taking will reduce on the strength of expected payouts and earnings surprises.
However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially during this season when dividend payment is ongoing.

We advise investors to allow numbers guide their decisions while repositioning for 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. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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