Reversal Imminent, As Investors Bet On Oil Price Rebound, Earnings Reports

Market Update for July 28

The big winners from the previous session on the Nigerian Stock Exchange (NSE), slowed down on Tuesday, as mixed trend continued after a positive reaction to half-year earnings reports. The composite All-Share index closed south on a low traded volume to remain relatively above its 20 and 50-Day Moving Averages, supporting a recovery, while indicating ‘buy’ interests from smart money while Money Flow Index oscillated to read 37.82 points despite profit taking by short-term traders.

The mixed earnings from Okomu Oil, Prestige Assurance and Mutual Benefits Assurance failed to impact the general market positively, despite influencing their share prices and sectoral performances for the day with investors reacting positively as revealed by the volume traded to top the gainers’ chart. The day’s negative slant was caused by oil/gas stocks which depressed the market due to unimpressive earnings reports that have so far emanated from the sector, as well as oscillating crude oil prices at the international market.

Tuesday’s trading started on the downside and fluctuated throughout the session on selloffs in petroleum products marketing stocks and position taking in insurance equities, which pushed the benchmark index to an intra-day low of 24,173.53 basis points, from its high of 24,783.61bps. Thereafter, the index finished lower at 24,650.16bps.

Tuesday’s market technicals were weak and mixed as volume traded was lower than the previous session in the midst of negative breadth and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 78% and sell volume of 22%. The total daily transaction volume index stood at 0.76, while momentum behind the day’s performance stayed weak, with Money Flow Index reading 37.82 points, as against the previous 44.35ps, indicating that funds exited some stocks.

Index and Market Caps

At the close of Tuesday’s session, the NSEASI shed 133.45 basis points, to close at 24,650.16bps from 24,783.61bps, representing a 0.54% drop, just as market capitalization lost N69.61bn, closing at N12.86tr after opening at N12.93tr, also representing 0.54% value depreciation.

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Tuesday downturn was due to selloffs and profit taking among medium and high cap stocks like MTNN, Guaranty Trust Bank, Total Nigeria, Seplat, Guinness, ETI, FBNH, and PZ. This impacted negatively on the NSE’s benchmark index, increasing the Year-To-Date loss to 8.17%, while market capitalization YTD turned remained positive, at N55.11bn, representing a 0.16% improvement over the year’s opening level.

Bearish Sector indices                                                                 

Performance across the various sectors were bearish as the NSE Oil/Gas, Banking  and Consumer goods closed in the red  by 5.20%, 0.45% and 0.13% respectively, while the NSE Insurance index was up by 0.43%, just as NSE Industrial Goods close flat.

Market breadth was negative, as decliners outnumbered advancers in the ratio of 17:14, while transactions in volume and value terms were down by 11.53% and 17.68% respectively, as investors exchanged 152.4m shares worth N1.98bn, as against the previous 169.99m units valued at N2.39bn. The day’s volume was boosted by trades in Mutual Benefits Assurance, FBNH, Access Bank, Lafarge Africa and Guaranty Trust Bank.

Berger Paints and Mutual Benefits Assurance were the best performing stocks for the day, after gaining 10% each and closing at N6.05 and N0.22 per share respectively on market forces and improving numbers. On the flip side, Total Nigeria and Seplat closed at N87.80 and N282.00 per share respectively on profit taking.

Market Outlook

We expect reversal in trend on crude oil rebounding sentiment in the midst of more earnings being release to the market, the impact of positive news of a Coronavirus vaccine on oil price and impact of CBN policies on the economy ahead of long holiday.  Just as investors are equally worried about inconsistent government policies which have continue to dampen confidence.

This is likely to support the wave of decline as pullbacks persist, creating new entering opportunities. Money flow index has continued to look up at 38.83 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 threatened by the rising cases of the COVID-19 pandemic, as earnings reporting season has kicked off, 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, we advise that you 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
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