Amidst Negative April Trading Opening, NGSE Rebound May Require More Than Q1 Earnings

Trading on Nigeria’s equity market for the week and month of April on Tuesday closed negative after the long holiday to mark the Easter festivities with yet another volatile and terrible trading session. As if that was not enough, it reversed all of previous session’s gain, as the composite Nigerian Stock Exchange (NSE) index opening the day with a gap down and staying so all morning.
By midday, it tried to rally, got right to the breakdown point, at the intraday resistance high of 41,615.41 from low of 40,795.66 and rolled over only to go lower, on a corrective wave 4 decline that ensued on profit taking since March 12, 2018.

Historically, April has been one of the strongest months of the year for Nigeria’s stock market, although in recent times, the gains have always come in the second half of the month. We could therefore see a repeat of that trend this time as it is the period when the 2018 Q1 corporate earnings start hitting the market. Consequently, the market rally happens as investors and traders react by taking positions for short, medium to long-term portfolio realignment.

It is also noteworthy that the market is kicking off the month of April on the downside, after the just concluded 2017 earnings reporting session that showed stronger fundamentals for many companies on the bourse, besides offering an insight into the ongoing economic recovery and its impact on the companies and the general market. Also, the slide came on a day when the Central Bank of Nigeria’s Monetary Policy Committee (MPC) began its first meeting of the year after a stand-off between the Federal Executive Council and the upper chamber of the National Assembly that had delayed confirmation of new nominees, leading to the lack of quorum for the meeting that last held in November. Since then, two other should have held in third week of January and March to fix Nigeria’s benchmark money market rate.

As the two-day meeting ends Tuesday afternoon, investors and analysts expect to get a sense of direction for the economy, even as the market awaits Q1 numbers in the face of low liquidity and demand for equities.
Tuesday’s was a session that struggled to breakdown the symmetrical triangle chart pattern, which is a continuation pattern that supports downtrend. This is especially given that the market is trading on the 100-Day Moving Average in a bearish zone and waiting for positive news to trigger upward retracement.

For the first trading session of April therefore, the NSE composite index revealed a bloody Tuesday, as all sectorial indexes and highly capitalized stocks closed in red, dragging down the market as investors look forward to a sense of direction from the outcome of MPC meeting. The composite index at the moment is seriously trying to break down the yellow trend line, confirming that the market has entered its long bearish mode, since the stronger company fundamentals as shown by the earnings have not influenced equity prices positively or supported reversal so far. This further shows that 2018 Q1 numbers will not do much as per impacting the market, except there is a major positive information in the market arena, since the election is coming closer every day.

Q1 Closed Periods
Market technicals for the first trading day of April were negative and mixed, as traded volume was high on a selling pressure of 93%. Market breadth was negative, signaling negative sentiment at the beginning of Q1 earnings reporting season as companies have started notifying the investing public of their closed period for Q1 numbers.
The closed period is when company boards meet to review the earnings report, preparatory to its being submitted to the NSE. During the period, senior executives of the company are forbidden from trading on its shares to prevent the use of such price sensitive information that could lead to insider trading.
Even then, qualification and markdown dates for audited 2017 full-year financials continue to influence the flow of funds into and within the market, due to the good dividend yield.
Volume index was 0.76 with money flow index momentum looking down at 23.43 points, from the previous day’s 23.09 points.

Index and Capitalisation Side
The All Share index shed 648.87 points to close at 40.855.64 basis points after opening at 41,504.51bp, representing a 1.56% decline on a low volume that was higher than the previous day’s.
Similarly, market capitalisation for the day lost N234.39bn to close at N14.76tr from an opening value of N14.89tr, also represented a 1.56% value loss.

The downturn resulted from selling pressure and profit booking in medium and high cap stocks which impacted negatively on the NSE’s Year-To-Date returns, dragging it down to 6.83%, just as market capitalisation gains for the period reduced to N1.18tr, representing 8.21% YTD growth.
mAll the market indexes closed in red due to the broad-based sell-off, even as market breadth for the day remained negative with decliners dominated advancers in the ratio of 38:11.
Market activities were up in volume and value by 34.15% and 68.75% respectively to 365.72m shares worth N6.27bn from the previous day’s 272.761m units valued at N3.71bn.
Transaction volume was boosted by financial services and conglomerates goods stocks like: Zenith Bank, Transcorp, Sterling Bank, FBNH, LASACO Insurance and ETI, which witnessed increased trading to top the activity chart.

Caverton and Law Union Insurance were the best performing stocks, topping the advancers’ table after gaining 8.99% and 4.11% respectively to close at N2.91 and N0.76 on the back of market forces and dividend. Fidelity Bank and Transcorp were the worst performers after losing 9.33% and 9.19% to close at N2.43 and N1.68 respectively on profit taking and market forces. Fidelity Bank is one of the few stocks yet to present their audited financials for the 2017 full-year, thereby arousing suspicion, a situation the market could be reacting negatively to, after the management notified the market of its delayed result.

Market Outlook
We expect the market to continue its volatility as investors await outcome of MPC meeting ahead of Q1 scorecards and economic data, even as investors position for the short and long term on the strength of company fundamentals and the expected Q1 numbers.
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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