NGSE Index Sinks Lower As Investors Take Profit Ahead Of Q2 Earnings Season

Market Update for July 6

Monday’s was a high volatile session on the Nigerian Stock Exchange (NSE) as expected, the composite All-Share index extended it losing momentum for the third consecutive trading session on an above-average traded volume and negative sentiments.

The extraordinary events and mixed trend in the first half of 2020 will continue to create significant uncertainties for the rest of the year. Also, with the low interest regime, the investing environment is all the more challenging for fund managers, traders and investors. But there are opportunities right here in the stock market, if only you will learn more to earn more by educating yourself and taking advantage of market volatility to grow your hard income.

Technically, the NSE’s key performance index has entered a decline phase on a daily time frame after breaking down the 50-Day Moving Average at the end of the day’s session to trade below 20 DMA in the last 15 sessions. This is revealing increased selling pressure in the midst of increasing notification of closed period and board meetings for approval of half year earnings reports of December year account. All the momentum indicators on the daily timeframe are looking down which are strong signs of weakness. The index broke down the Fibonacci retracement line of 38.2 as sell volume stood at 83%, and money flow index down at 26.29 point.

Nigerian banks with a history of paying interim dividend can afford to pay this year, depending on their dividend policies and earnings capacity, given that such interim dividend are relatively small.

Traders should wait for the prices of these banking stocks to drop further before jumping in, while investors with long-term investment objective can position in stages. This is because historical data shows that early filers among these banks come in the second week of August, while late submission comes in late August/ early September.

As we have alwaysnoted also, in any market situation there are opportunities, especially with the earningsseason around the corner to change market momentum and action. You don’t have to be smart to make money in the stock market because the way it moves is always changing. As such, what you need is to think differently and educate yourself, using home study packs and videos, especially mastering the earnings season for profitable trading and investing in any market situation/cycle. That means we do not equate an “up” market with a “good” market and vice–versa. Markets present different opportunities to make money at different times.

Meanwhile, Monday’s trading opened on the downside and was sustained throughout the session, on a wild volatility that pushed the NSE index to an intra-day low of 23.961.14 basis points, from its high of 24,352.20bps, and thereafter finished the session lower at 24,026.05bps on negative breadth.

Market technicals were negative and mixed as volume traded was higher than the previous session’s, with breadth favoring the bears and negative sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 83% and buy volume of 17%. Total daily transaction volume index stood at 0.77, just as energy behind the day’s performance stayed weak, with Money Flow Index reading 26.29 points, flat from the previous 26.12ps, indicating that funds enter some stocks despite the down market.

Index and Market Caps

The benchmark NSEASI at the end of Monday’s trading, shed 310.07 basis points, closing at 24,026.05bps from opening figure of 24,336.12bps, which represents 1.27% decline, while market capitalization lost N161.75bn, closing at N12.53tr from an opening value of N12.7tr representing a 1.27% value loss.

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Monday downturn was driven by selloffs and profit taking in high cap stocks like  Nestle, BUA Cement, Beta Glass, Access Bank, Julius Berger, Oando and C&I Leasing which impacted negatively on the NSE’s benchmark index, increasing its Year-To-Date loss to 10.49%, as market capitalization YTD loss  stood at N143.12bn, representing a 1.56% down from the year’s opening level.

Mixed Sector indices 

The sectorial performance indexes were largely bearish, except for the NSE Banking and Insurance indexes that closed higher by 1.51% and 1.05% respectively, while the NSE Consumer Goods led the decliners by 3.18%, followed by Industrial Goods and Oil/Gas indexes which shed 2.33% and 0.04% respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 17:14, while transactions in volume and value terms were up by 31.44% and 82.91% respectively as investors exchanged 189.69m shares worth N2.78bn from the previous day’s 144.31m valued at N1.52bn. The day’s volume was boosted by trades in Guaranty Trust Bank, Access Bank, UBA, FBNH and Zenith Bank.

Nahco and Cornerstone Insurance were the best performing for the day, after gaining10% each, closing at N2.20 and N0.55 per share respectively on market sentiment andforces. On the flip side, Beta Glass and Julius Berger lost 9.95% and 9.81% ,closing at N61.55 and N16.55per share respectively on selloffs.

Market Outlook

We expect the bearish mood to continue on the absent of positive fundamental news as inconsistent government policies dampen investor confidence ahead of disappointing half year  corporate earnings reports.  This is likely to support the wave of decline as pullbacks persist to create new entering opportunities. Money flow index has continue to look down at 26.29, despite flowing from one sector to the other, seeking value in terms of low prices with high upsidepotentials.

This is just as economic recovery is  threaten by increasing coronavirus new cases regardless of stimulus packages by government and the Central Bank of Nigeria (CBN), ahead of the Q2 earnings reports, which implies that opportunities are still available assectoral rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

For immediate liquidity or cash let us trade low priced stocks withserious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as fewaudited and unaudited corporate earnings will hit the market, going forward,despite the likely continuation of selloffs. Investors are buying to increasetheir positions in undervalued stocks ahead of Q2 numbers. This is also againstthe 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.

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. 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.

NB:The home study packs and videos that will help you prepare and take advantage of the current happening in the market and economy are available at Investdata. How to invest or trade profitably in changing market dynamics and recession. Mastering earnings season for profitable investment To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085,08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd
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