NGSE Index Slips 0.38% Amidst Profit-taking, As Market Searches For Direction

Market Update for June 4

The composite index of the Nigerian Stock Exchange on Thursday took another breather from the two-month rally, as sectoral indexes recorded a mixed performance, after high cap stock closed lower on a low traded volume, amidst negative sentiments.

The low supply at this ranging market may indicate a markup by smart money, or pullback, but there is need to await confirmation of this at Friday’s trading session.


The recovery has been strong in the last 38 trading sessions, consolidating its movement in the last five trading days, while forming a consolidation pattern of higher highs to pause the rally, after breaking out the 20-Day Moving Average on April 14. This was followed by the 50-DMA on May 5, heading to crossover the long moving average of 200 day before slowing down on market players indecision.

A rise above the 200-DMA would have made a bullish reinforcement of the uptrend’s momentum, just as a pause below or pullback from the above yellow line would suggest resistance, as major institutional investors collectively read the current value of the industrials as appropriate to the outlook for the national and global economies.

Meanwhile, Thursday’s trading opened slightly on the downside and was sustained throughout the session, despite oscillating between the mid-morning and afternoon on profit taking among the high cap stocks. This pushed the NSE All-Share index to an intraday low of 25,312.05 basis points, from a high of 25,434.62bps, before closing the day lower at 25,312.05pps.

Market technicals during the session were negative and weak as volume traded fell below previous session’s in the midst of negative breadth and strong selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell position of 100%. Total daily transaction volume index stood at 0.92, just as the impetus  behind the day’s performance stayed strong, with Money Flow Index reading 94.04 points, down from the previous 96.62ps, indicating a gradual exit of funds as traders cash out profit from the rally.

Index and Market Caps

The All Share index lost 95.91bps, closing at 25,312.05ps, from the 25,407.96bps it opened, representing a 0.38% drop, while market capitalisation lost by N58.13bn to N13.2tr, as against the opening value of N13.25tr, representing a 0.38% value loss.

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Thursday’s downturn was impacted by profit taking and market forces recorded by MTNN, Guaranty Trust Bank, Custodian Investment, GSK, May Baker and AIICO, and among others. This impacted mildly on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 5.70%, while market capitalization YTD gains dropped to N243.12bn, representing a 1.93% up from the year’s opening level.

Mixed Sector Indices

The sectoral performance indices were largely bearish except for the NSE Consumer and Industrial Goods that closed higher by 0.89% and 0.27% respectively, while NSE Banking led the decliners shedding 2.12%, followed by NSE Oil/Gas and Insurance which fell by 0.39% and 0.23% respectively.

Market breadth was negative with decliners outpacing advancers in the ratio of 17:14, just as transaction in volume and value terms were down by 23.5% and 24.7% respectively, as investors exchanged 270.2m shares worth N5.3bn from the previous day’s 353.26m units valued at N7.04bn. Volume was driven by trades in FBNH, Zenith Bank, FCMB, Guaranty Trust Bank and Dangote Cement.

UACN Property and Sky Aviation were the best performing stocks of the day after gaining 10% and 9.69% respectively, closing at N0.88 and N2.49 per share respectively on market forces and dividend payout of N0.165 per share. On the flip side, Cutix and Lasaco Assurance lost 9.63% and 7.41% respectively, closing at N1.69 and N0.25per share respectively on prifit taking market forces.

 Market Outlook

We expect profit taking to continue, as breakout or breakdown at this consolidation level will confirm next market direction despite profit-taking, as investors positioning reveals confidence among market players, implying that opportunities are still available before the Q2-driven earnings expectation. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for consideration ahead of the Q2 economic and corporate data.

While investors digest the impact of the MPR cut from 13.5%, corporate earnings and economic activities, the MFI is showing improved institutional investors activity in the midst of the oscillating oil prices, amidst the rising new cases of the coronavirus with the number of infected people crossing 10,000 and deaths above 280.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets 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 amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers 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 going forward.

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.

Ambrose Omordion

CRO|Investdata Consulting Ltd

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