NGSE Index Up, As Investors Seek Low Priced Stocks With High Upside Potentials

Market Update for July 7

Trading activities on the Nigerian Stock Exchange (NSE), on Tuesday had a volatile and mixed session, as the benchmark All Share index resisted further decline on a seeming buying interest in high priced stocks that helped the market to close higher on less than average traded volume. This is a reflection of the lingering indecision and dwindling confidence among investors while taking positions.

With more companies releasing their closed period the Q2 and earnings season kicking off next week when early filers are expected to start hitting the market with actual numbers, even as investors continue to show mixed reactions.

Technically, trend following indicators turned up as the index closed above the lower Bollinger Bands by 4.7%.

Meanwhile, Bollinger Bands are 54.6% narrower than normal. The narrow width of the bands suggests low volatility, compared to NSEASI’s normal trading range.  Money flow index is looking up at 27.57, indicating that liquidity in the market is still low, considering the mixed sentiment that had prevailed in recent times. It is obvious that the Coronavirus (COVID-19) has triggered a reset in the global and domestic economy and the effect will continue to re-direct market trends against known historical patterns.

So, players should be cautious around the market arena, setting a good buying range and exit strategies at all times.

As we have always noted also, in any market situation there are opportunities, especially with the earnings season 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.

Tuesday’s trading started on the upside and was sustained throughout the session, despite oscillating on demand and selloffs in high cap stocks that pushed the NSE index to an intra-day high  of 24,152.67 basis points, from its low  of 24,026.05bps, and thereafter closed the day higher at 24,097.48bps.

The session’s market technicals were positive but weak as volume traded was lower than the previous session’s, in the midst of a negative breadth and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 43% and buy volume of 57%. Total daily transaction volume index stood at 0.65, just as the impetus behind the day’s performance stayed weak, with Money Flow Index reading 27.57 points, up from the previous 26.29ps, indicating that funds entered some stocks.

Index and Market Caps

At the close of Tuesday’s trading, the NSEASI gained 72.03 basis points, closing at 24,097.48bps, after opening at 24,026.05bps, representing a 0.30% rise, while market capitalization climbed N37.26bn up, closing at N12.57tr from an opening value of N12.53tr, representing a 0.30% appreciation in value.

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The day’s upturn was due to buying interests in Airtel Africa, BUA Cement, Zenith Bank, Guaranty Trust Bank, UBA, FBNH, C&I Leasing,  Redstar Express and PZ. These impacted mildly on the NSE’s benchmark index, reducing its Year-To-Date loss to 10.22%, as market capitalization YTD loss stood at N387.71bn, representing a 2.99% down from the year’s opening level.

Mixed Sector indices 

The sectorial performance indexes were largely bearish, except for the NSE Banking and Industrial Goods indexes that closed higher by 0.92% and 0.09% respectively, while the NSE Insurance led the decliners by 1.92%, followed by Consumer Goods and Oil/Gas indexes which shed 0.52% and 0.02% respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 18:17, while transactions in volume and value terms were down by 18.01% and 6.61% respectively as investors exchanged 155.53m shares worth N2.6bn, from the previous day’s 189.69m units valued at N2.78bn. The day’s volume was boosted by trades in Guaranty Trust Bank, Access Bank, MTNN, UBA and Japaul Oil.

The best performing stock of the day were Redstar Express and Wapic Insurance, after gaining 9.76% and 6.06% respectively, closing at N3.26 and N0.35 per share respectively on dividend expectation and market forces. On the flip side, Okomu Oil and Unilever lost 9.95% and 9.78%, closing at N69.70 and N12.45per share respectively on profit taking and selloffs.

Market Outlook

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

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 as sectoral 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 with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. It 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.

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.


 Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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