Time For Cautious Trading, As NGSE Index Closes Above 20-Day Moving Average

Market Update for July 23

Thursday’s trading on the Nigerian Stock Exchange was volatile and bullish, halting four sessions of back-to-back losses on improved buying interests in large cap stocks, especially Dangote Cement and MTNN. This pushed the composite NSE All-Share index higher on low traded volume and flat market breadth.

Also on Thursday, Africa Prudential and Cadbury presented to the market, half-year results that were mixed and reflective of the economic realities for the period.  The scorecard of Africa Prudential was mixed, as revealed by its revenue which was down by 32% and profitability level up marginally by 5%, which produced 52 kobo Earning Per Share, slightly lower than the previous 51 kobo posted in 2019. In the case of Cadbury, top and bottom lines were down by 18% and 15% respectively.

The economy and stock market are in cycles, that give direction for the next few years, but valuation suggests a bear market between now and end of the year, depending on the impact of the second wave of the novel coronavirus (COVID-19) pandemic. Stock markets through most time periods have little correlation with the economy. Sentiments, as we have always said, drive equity prices. Sentiments which appear to run in cycles seem the main driver, with the shortest cycle now suggesting tradable opportunities with caution. 

Meanwhile Thursday’s trading started marginally on the upside. This was sustained throughout the session on demand for high cap stocks that had recently suffered losses, a situation that pushed the NSE index to an intra-day high of 24,512.27 basis points, from its low of 24,173.53bps. Thereafter, the index finished the day higher at 24,512.27bps, even as candlestick formation indicates a bullish pattern reversal. However, investors and traders should watch, especially with the index closing above the 20-Day Moving Average.

The session market technicals were positive and mixed, as volume traded was lower than the previous day in the midst of a flat breadth and high buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 100%. The total daily transaction volume index stood at 0.80, just as momentum  behind the day’s performance stayed weak, and Money Flow Index reading 38.83 points, better than the previous 33.70ps, indicating that funds entered some stocks to erase the market’s Week-to-Date losses.

Index and Market Caps

The key performance NSEASI at the close of Thursday’s trading gained 338.74 basis points, at 24,512.27bps from an opening figure of 24,173.53bps, representing 1.40% growth, just as market capitalization, within the same period, rose by N176.71bn closing at N12.79tr, from an opening value of N12.61trillion, representing 1.40% appreciation in value.

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Thursday’s upturn was due to value appreciation recorded by medium and high cap stocks like MTNN, Dangote Cement, FBNH, Access Bank, Custodian Investment and Africa Prudential, which impacted positively  on the NSE’s benchmark index’s Year-To-Date loss, reducing  it to 8.68%. Also, market capitalization YTD loss fell to N171.33 billion, representing a 1.32% drop from the year’s opening level.

Bearish Sector indices                                                                 

The sectoral performance indexes were largely bearish, except for the NSE Industrial Goods and insurance that closed higher by 3.26% and 0.12% respectively. The NSE Consumer Goods index led the decliners losing 0.23%, followed by the NSE Banking and Oil/Gas, which fell by 0.08% and 0.04% respectively.

Market breadth remained at equilibrium, as advancers were equal to decliners in the ratio of 11:11, while activity in volume and value terms fell by 59.20% and 53.32% respectively, as investors exchanged 164.29m shares worth N2.13bn from the previous 402.64m units valued at N4.55bn. Volume was boosted by trades in FBNH, Custodian Investment, Zenith Bank, Guaranty Trust Bank and UBA.

Dangote Cement and Jaiz Bank were the best performing stocks for the day, after gaining 10% and 7.38% respectively, closing at N134.50 and N0.56 per share respectively ahead of their quarterly results. On the flip side, Neimeth pharms and Mutual Benefits Assurance lost 6.67% and 4.76%, closing at N1.40 and N0.21 per share respectively on position taking.

Market Outlook

We expect inflow into the equity assets as rising inflation threatens other investment windows returns in the midst of more earnings being release to the market, positive news of coronavirus vaccine on oil price and impact of CBN policies on the economy.  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.

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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