Profit Taking May Continue, As Smart Money Positions Ahead Of More Earnings Reports

Market Update for April 21

As projected by Investdata analysts, equity prices on the Nigerian Stock Exchange (NSE) tumbled on Tuesday as the composite All-Share index closed lower on massive profit-taking from recent robust gains by the market. This coincided with news of huge losses in crude oil prices which have continued to rattle the global markets and economies amidst the daily rise in the number of Coronavirus (COVID-19) cases, despite the continued lockdown to curtail the spread.

Also on Tuesday, the National Bureau of Statistics (NBS) released the March Consumer Price Index, showing that inflation rose to its highest in 24 months at 12.26%, just as the market received first-quarter earnings reports from FBN Holdings, Cadbury and United Capital, which, however, failed to impact their share prices likely due to the prevailing mode of the market and economy.

That notwithstanding, the earnings news has given an insight into what should be expected from quoted companies for Q1, how to position going forward. The 2020Q1 numbers will also show which sectors to target for the Q2 corporate earnings, given that economic data are expected to slow down significantly.

Undoubtedly, the correction has set in after the sharp divergence between market performance in recent times and the economic situation as smart money has quickly pushed prices up in expectation of reopening of the lockdown soon. This move is typical of a recovering market and should not result in panic selling in any way, but rather an opportunity for traders who missed out in the recovery moves to take advantage of the pullback and join the market again. We are of the opinion that the market may be enjoying some inflows from smart money.

Although we advise cautious play around the market and a change of strategies to reposition for the opportunities in a challenging economy such as we have today.
Tuesday’s trading opened on a gap down which was sustained throughout the session as profit-taking hit blue-chip stocks, pushing the NSE All-Share Index to an intraday low of 22,612.97 basis points, from its high of 22,920.41ps, before closing the session lower at 22,629.92bps on a low traded volume.

Market technicals were negative and weak, with lower traded volume than the previous session, in the midst of negative breadth and sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 6% and sell position of 94%.

Total daily transaction volume index stood at 0.69, but the impetus behind the day’s performance inched up, with Money Flow Index reading 55.60 points, up from the previous 49.71ps, indicating that funds entered some stocks despite the down market.

Index and Market Caps
At the close of Tuesday trading, the composite index lost 290.49bps from the opening figure of 22,921.59ps, representing a 1.27% decline, while market capitalization was down by N151.39bn to close at N11.79tr from an opening value of N11.95tr which also represented a 1.27% depreciation in value.

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The day’s decline was impacted by profit-taking in Guaranty Trust Bank, Seplat, Guinness, Julius Berger, Zenith Bank, Lafarge Africa, Access Bank, UBA, FBNH and Oando, which impacted negatively on the NSE index, increasing its Year-To-Date loss to 15.69%. Market capitalization YTD stood to N1.24 trillion representing an 8.09% drop from the year’s opening value.

Bearish Sector Indices

All the sectorial performance indexes closed red, led by NSE Banking which lost 5.75%, followed by the NSE Insurance with 1.45%, while the Oil/Gas, Industrial and Consumer Goods which shed 1.25%, 0.38%, and 0.10% respectively.

Market breadth, however, remained negative as decliners outweighed advancers in the ratio of 27:4, just as transactions in volume and value terms fell by 27.53% and 44.66% respectively, as investors exchanged 250.35m shares worth N2.33bn from the previous day’s 345.44m units valued at N4.21bn. The day’s volume was driven by trades in FBNH, Zenith Bank, Guaranty Trust Bank, UBA and Fidelity Bank.

The best-performing stocks during the session were Omoluabi Microfinance Bank and NPF Microfinance, which chalked 9.09% and 8.70% respectively, closing at N0.60 and N1.25 per share on market forces. On the flip side, Oando and Champion Breweries lost 10% each, closing at N2.25 and N0.81per share respectively, on profit-taking and selloffs.

Market Outlook
We expect profit taking to continue since the index had formed another double top on mixed sentiment and negative news of oil price slump as smart money repositions their portfolios ahead of more corporate earnings and implications of the March inflation data and its confirmation of the economic contraction ahead as national output continue to decline.

However, the market’s high dividend yield continues to attract buying interests, while more audited corporate earnings hit the market going forward. This is despite the likely continuation of selloff still, 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.

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https://investdata.com.ng/2020/04/profit-taking-may-continue-as-smart-money-positions-ahead-of-more-earnings-reports/