NGSE Indicator Sustains Uptrend, Ahead Of Profit Booking, Mixed Trend, Portfolio Rebalancing

Market Update for April 14
Equity prices climbed higher on the Nigerian Stock Exchange (NSE) on Tuesday in continuation of positive sentiments among medium and large companies stocks, accompanied by high volatility, following through the fourth trading sessions of the rally on a higher volume traded. The benchmark NSE All-Share index gained a strong 2.32%, confirming the uptrend despite the Coronavirus induced bear market and gloomy economy, on a day the International Monetary Fund (IMF) projected that Nigeria’s economy is recession-bound and could slow down by as much as 3.5% this year (READ MORE).

The rising new coronavirus cases and oscillating crude oil prices in the international market as OPEC and its allies agreed to cut production so as to push the price up are still of concern to the investors. This is notwithstanding the interventions by the Central Bank of Nigeria (CBN) in its bid to stimulate the economy and maintain financial stability totaling N3.5tr so far now at 5% interest with a new one-year moratorium.

Meanwhile, the government’s palliative measures to mitigate the effect of the Coronavirus pandemic outbreak, seems non-existent with the commercial city of Lagos and Federal Capital Territory of Abuja on lockdown, despite the trillions of Naira reportedly disbursed. We would have expected an announcement of reduction or further tax rebate to help companies and individuals cushion the effects of the pandemic and help maintain their workforce and not worsen the unemployment situation in the country.

It is true that the general market direction is responsible for 50% of equity price movements, but in an already challenging economy like ours today, the follow-through witnessed so far may not suggest full rebound. This is because the composite index’s action has formed a double top at the end of Tuesday’s trading, which is already a sign of pullback and a high possibility of profit-taking.

In all these, the emerging new trend shows that uncertainties come with opportunities for discerning investors and traders as the market has resisted to breakdown its 17-year strong support level or last line of defense. Internally, the stock market may have started to heal.
We now need to see the market build on this with more evidence of active participation that more decisively turns momentum on the side of the bulls.

We caution traders and investors that the most popular trading and investing strategies are dead on arrival in the NSE, even as intelligent investors are actively trading against the bearish trend.

Meanwhile, Tuesday’s trading opened after the Easter Monday holiday on the upside till mid-morning and oscillated for the rest of the session on strong buying interest that pushed the NSE benchmark index to intraday highs of 21,883.39 basis points, from its low of 21,239.02ps. Thereafter, it finished the day higher at 21,879.95bps on positive breadth.

Tuesday’s market technicals were positive and strong with volume traded higher than the previous session, with breadth favoring the bulls, and high buying sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 99% and sell position of 1% as total daily transaction volume index of 1.24. Just as momentum behind the day’s performance was seriously weak, despite Money Flow Index moving up to 37.07points, from the previous session’s 24.89ps, indicating that funds entered some stocks and the market at large.

Index and Market Caps
At the end of the trading session, the composite NSEASI gained 495.92bps, closing at 21,879.95 after opening at 21,384.04ps, representing a 2.32% growth, just as market capitalization grew by N2588.45bn to N11.14tr, from the N11.14tr it opened, also representing a 2.32% appreciation in value.

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The upturn for the day was driven by buying interest in low medium and high cap stocks like Dangote Cement, MTNN, Guaranty Trust Bank, Zenith Bank, UBA, Stanbic IBTC, Honeywell, Ecobank Transnational Incorporated, Dangote Sugar and Oando. This impacted positively on the NSE index, reducing its Year-To-Date loss to 18.49%, while market capitalization YTD reduced to N1.64tr, representing an 11.34% drop from the year’s opening value.

Bullish Sector Indices
All the sectorial performance indexes closed in green, except for the NSE Insurance and Industrial Goods Index that closed 0.26% and 0.14% down respectively, while the NSE Banking index led the advancers after gaining 4.53%, followed by the NSE Consumer Goods and Oil/Gas that garnered 2.17% and 1.34% up respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 29:12, just as market transactions in terms of volume and value were mixed. Volume was up by 77.14% to 557.82m shares, as against the previous day’s 314.91m units, while value declined by 47.89% to N2.62bn from the previous day’s N5.02bn. This volume was driven by trades in Omoluabi MFB, FBNH, Zenith Bank, UBA and Fidelity Bank.

Oando and Nigerian Breweries were the best-performing stocks, gaining 10% and 9.91% respectively, and closing at N2.64 and N24.40 per share on low price attractions and market forces. On the flip side, PZ Cussons and Redstar Express lost 9.09% and 5.86% closing at N4.00 and N2.73 per share respectively, on market forces.

Market Outlook
The NSE’s index action has formed a double top, we expect profit booking and mixed trend as market players and institutional investors rebalance their portfolio ahead of more corporate earnings and macro-economic data from the National Bureau of Statistics. Also, more companies continue to notify the exchange and investors of their virtual annual general meetings and closed period for 2020 first-quarter earnings reports.

However, the high dividend yields continue to attract buying interests, while more audited corporate earnings hit the market going forward. This is despite the likely continuation of the selloffs, with investors buying to increase their positions in undervalued stocks ahead of dividend declaration.

This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.
Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the New Year.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives and their impact on the economy in the nearest future.
Meanwhile, the home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available.

https://investdata.com.ng/2020/04/ngse-indicator-sustain-uptrend-ahead-of-profit-booking-mixed-trend-portfolio-rebalancing/