Sustained Volatility, Low Volume, Profit Taking, As Investors Rebalance Their Portfolios

The three-day back-to-back trading sessions of gains were halted on Thursday amidst sustained volatility, low transaction volume and profit taking, just as mixed sentiments triggered the bear retreat, as value investors continue to position for the short and long-term on the strength of company fundamentals.

According to investdata daily sentiment report, buying pressure declined from midweek position of 62% to 45% which is still okay since it has not gone below the 30% mark considered low, because we actually saw the return of selling pressure in the first half of April when bearish sentiment was high.
The percentage of companies on the Nigerian Stock Exchange (NSE) that beat market and analysts’ estimates in the 2017 full year and 2018Q1 are more, compared to previous quarters and full-year earnings seasons.

For example, the rate at which the NSE Banking Index beat expectation in the 2017 full-year results was high, but the 2018Q1 is low, because only few particularly: Zenith Bank and Stanbic IBTC posted strong numbers, while others came in mainly flat. We also saw the same trend in the consumer goods sector which posted strong full-year numbers that beat estimates, while in Q1 some companies like Nestle, Unilever, Guinness, and National Salt beat rates came high. The industrial sector full year and Q1 beat expectations, especially Dangote Cement, Cement Company of Northern Nigeria (CCNN), and Chemical & Allied Products (CAP Plc). In the Oil/Gas sector, majority of numbers were strong in the full year 2017 and Q1, as most of them beat market and investors expectation for the periods, particularly Eterna, Seplat Petroleum Development Company, 11 Plc (formerly Mobil Oil), MRS and Oando, which returned to profit. The insurance sector in the last two seasons have improved on timely reporting of their numbers, just as their full-year and Q1 2018 earnings performance was mixed. The numbers were high at Q1, especially from Continental Reinsurance, Law Union, Custodian and Aiico.

The good thing from the recent earnings reporting seasons are that companies on the NSE are better and stronger as revealed by these numbers, a situation expected to drive future price appreciation, especially at a time most of the stocks are variously undervalued. The potential of these equities to create wealth for discerning investors in the 2019 reporting season is high for those that will follow Investdata to guide them in this period and beyond.

Meanwhile, the market technicals for Thursday were weak and mixed as volume traded was low amidst increasing selling pressure and flat market breadth. The sell-off position was 55%, while buying volume was 45% on a volume index of 0.78 of the day’s total transaction. The bull transition was short-lived as profit booking in high cap stocks reflected in the day’s money flow index as it was weakened further at 48.33 points. Compared to previous day’s 52.91 points, this is an indication that funds are still leaving the market.

Index and Market Cap
Benchmark Index for the session dropped by 198.21 basis points to close at 41,107.81bps after opening at 41306.02bps, representing a 0.48% decline on a low volume that was higher than the previous day’s. Similarly, market capitalisation was down by N71.8bn to close at N14.89tr from an opening value of N14.96tr, also representing 0.48% drop in investors position.

The downturn was driven by profit taking in stocks like: Dangote Cement and NB, the NSE’s biggest companies by market capitalization; International Brewery, which slipped into loss at Q1, despite a significant rise in turnover for the period (READ); Dangote Sugar, Dangote Flour, Eterna and Oando. These impacted negatively on the NSE’s Year-to-Date returns, cutting it to 7.49%; while market capitalisation gains for the period fell to N1.28tr, representing 9.41% above the year’s opening value.

Bearish Sector Performance
Performance across the sectors was bearish except for the NSE Banking and insurance that were higher as a result of price appreciation in Guaranty Trust Bank, UBN, ETI and Continental Reinsurance. Other sectors were down in the same direction with the general market.
Market breadth was flat as advancers were equal to decliners in the ratio of 25:25 to halt the three-day bull run.
Market activities were mixed as volume rose by 15.98% to 320.4m shares from previous day 276.17m units while value was down by 30.91% to N4.76bn from the previous day’s N6.89bn.

Transaction volume was boosted by financial services and IT stocks like UBA, Access Bank, Etranzaact, Zenith Bank and FBNH which witnessed increased trading to top the activity chart.
The best performing stocks for the day were Unity Bank and CCNN that topped the advancers’ table with gain of 9.52% and 7.58% respectively to close at N1.15 and N22.00 each. This was due to market sentiment and positive reaction to dividend and stronger Q1 numbers.
On the flip side, International Brewery and Dangote Sugar were the worst performing, after losing 8.3% and 5% respectively to close at N47.50 and N19.00 purely on disappointing Q1 numbers.

Market Outlook
Being the last trading day of the week, we expect volatility and profit taking to continue even as investors react to earnings reports and reshuffle their portfolios amidst interpretation of emerging earnings reports ahead of Q1 GDP and April inflation figure. These are likely to confirm the positive impact of monetary stimulus and extraneous factors like upswing in oil price, among other global events now closely under watch.

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 and Q1 results are expected in the market arena.
We advise investors to allow numbers guide their decisions while repositioning in any stock, 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.

Get your home study pack of the INVEST 2018 Traders & Investors Summit and ride with the current recovery on Nigeria’s stock market and economy, thereby ensuring that you invest and trade with knowledge. You can also access stocks analysed in the home study pack of the Chart Summit held on February 24, 2018, including the 15 stock-picks for 2018 are available now to guide your positioning as trading for the year.
Comprehensive training materials on stock Trading and Investing for Financial Independence series are Available, you can play and watch on your mobile phone, laptop, desktop and TV set. Kindly call or send yes to 08032055467, 08028164086 or 08111811223.

Ambrose Omordion
CRO| Investdata Consulting Ltd
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Tel: 08028164085, 08032055467
https://investdata.com.ng/2018/05/sustained-volatility-low-volume-profit-taking-investors-rebalance-portfolios/