Profit Taking, Volatility Ahead, Amidst Bargain Hunting, Year-end Portfolio Repositioning

Market Update for December 24

Nigeria stock market had a big reversal at Monday’s session, with the benchmark All-Share index regaining all it had lost in the previous 23 days on a huge volume traded and strong market breadth that seemed to announce the arrival of long awaited Santa Claus rally.

This seasonal movement at the end of the year has become a pattern that historically helps the month of December to end on a positive note over the past four consecutive years. Such knee-jerk movement, according to Investdata Research has come, particularly as we saw on Monday, December 24, 2018, come on the strength of increased activities of institutional investors, among others, taking advantage of persisting low prices to reposition their portfolios, while targeting blue chip stocks ahead of the 2018 full year earnings reporting season in Q1 2019.

The composite NSEASI opened with a gap up early in the morning, making new highs during the entire session, climbing from 30,773.64 basis points and then rallying sharply to hit 31,967.01bps. In the process, the index recovered a significant 1,193.37bps, with the NSE at wave 5 indicating a short Bull Run in a bearish market. All five sectorial indexes closed in the green, something that has become a rarity.

Investdata Research believes the strong bullish session witnessed on Monday is a signal of what investors and traders should expect after the 2019 elections, if the economy is fit. This is because no stock market exists in isolation, given that strong economic fundamentals drive company performances that in turn support equity prices during any market conduction.
What happened during the last Q3 earnings season is likely to repeat itself during the next earnings season as stock prices remain low with expected high dividend yield for companies likely to grow their dividend payout.

Monday’s market technicals were positive and strong, especially given that traded volume was huge and higher than previous day’s in the midst of positive breadth. There was also strong buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a buy volume of 100%. Volume index for the day’s total transactions was 2.61, while the force behind the market’s performance was up, as reflected in the money flow index at 49.44bps, which rose from previous day’s 41.72bps, indicating that funds entered the market and some stocks.

Index and Market Cap
The All Share Index’s rise was the highest daily gain in all of 44 months (three years and eight months) to close above the 31,000 psychological line at 31,967.01bps, from 30,773.64bps. This represented 3.88% growth, just as market capitalization climbed by N435.9bn to N11.68tr, after opening at N11.24tr, representing a 3.88% value gain.

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The upturn was impacted by value appreciation in medium and high cap stocks like: Nestle, Seplat Petroleum, Dangote Cement, Zenith Bank, Guaranty Trust Bank, Diamond Bank, Stanbic IBTC, Access and Dangote Sugar among others. This reduced Year-to-Date loss to 16.41%, and that of market capitalization to N2.26tr from its opening level in January, representing 14.32% decline during the period.

Bullish Sectors Indices
All the sectoral indices were bullish as the market turned around, while breadth remained positive with advancers outnumbering decliners in the ratio of 36:5, just as activities were up in volume and value by 269.45% and 41.69% respectively. Investors traded 715.04m shares worth N5.19bn, compared to previous session’s 193.53m units valued at N3.67bn, driven by: NEM Insurance, MedView Airline, Guaranty Trust Bank Transcorp.

Stanbic IBTC and Diamond Bank were the best performing stocks as they topped the advancers table, gaining 10% each to close at N50.60 and N1.65 each, apparently on the back of market forces and merger deal of the latter with Access Bank. For both stock, we cannot also rule out the effect of the agreement between the Central Bank of Nigeria (CBN) and MTN Communications Limited, which reached amicable settlement over the $8.13bn improper repatriation of dividend (READ MORE). The day’s decliners side was led by Guinea Insurance and Tantalizer, following their 8.0%% and 6.67% slide, closing at N0.23 and N0.20 each, on market forces.

Market Outlook
Expect profit taking and sustained volatility amidst bargain hunting and portfolio repositioning for year-end to shape performance of the market in the last three days of 2018.

MACD on weekly and daily time frame have crossed over on high volume, which supports uptrend, depending on market forces after the Christmas holiday, even as the market is still resisting further decline. This is especially as the number of companies hitting new 52-week low has dropped.

The ongoing volatility will persist as Q3 numbers assist investors and fund managers rebalance their portfolios, while watching the political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of weak company, economic and market fundamentals.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
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Tel: 08028164085, 08032055467
https://investdata.com.ng/2018/12/profit-taking-volatility-ahead-amidst-bargain-hunting-year-end-portfolio-repositioning/