Mixed Trend May Persist On Profit Booking, As Investors Eye Undervalued, Div Stocks
The mixed and volatile trading session continued on the Nigerian Stock Exchange at the midweek, but this time, the bulls resurfaced, halting previous day’s loss on a rekindled buying interest in dividend-paying, as well as medium and low priced stocks. This occurred on the back of a low traded volume and positive market breadth that reflected the cautious trading pattern, as the Money Flow Index and other technical indicators signaled a bearish divergence from the composite index’s action, notwithstanding the fact that the market closed marginally positive.
Nevertheless, the factors that drove the market to this level are still lurking, ahead of the 2020 full-year earnings reporting season that kicks off next month for early filers, besides the impact of oscillating oil prices in the international market. This is considering news of a second wave of economic lockdowns to curtail the spread of a second wave of the Covid-19 pandemic that now threatens global and domestic economies in the face of increasing rate of vaccine approvals and distributions.
Also, a change in monetary policy and key economic indicators will receive sharp reactions depending on the direction.
Despite the seeming rebound, we still believe investors should not underestimate the possibility of profit-taking and pullbacks any time soon, because price correction is inevitable after last year’s significant market rally. We note, that this possibility notwithstanding, the Nigerian equity market still has a trading pattern that supports an uptrend.
The fact that the index is rallying outside the upper limit of the Bollinger band, signals ‘sell,’ while other technical indicators are showing overbought and support a possible market correction.
Meanwhile, midweek’s trading started on a slight upside, which was maintained throughout the session, despite oscillating between midday and late afternoon on position taking in banking, consumer goods and insurance stocks. This pushed the benchmark index to an intraday high of 40,465.15 basis points, from its low of 40,388.30bps, before closing above the day’s opening level at 40,465.15bps.
Wednesday’s market technicals were positive and weak, with volume traded lower than the previous day’s in the midst of positive breadth and buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 0.52 points, even as the energy behind the day’s performance remained strong, with Money flow index looking down at 87.56pts, from the previous day’s 91.86pts, indicating that funds left the market, despite closing higher.
Index and Market Caps
At the end of midweek’s trading, the NSE’s All Share index gained a marginal 69.01 basis points, after opening at 40,396.16bps representing a 0.17% up, just as market capitalization rose by N36.08bn, closing at N21.16tr, from N21.12tr, representing a 0.17% value gain.
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The day’s upturn resulted from demand for stocks like Zenith Bank, Flour Mills, UBA, FBNH, International Breweries, BOC Gases, Vitafoam, and United Capital, among others. This impacted mildly on Year-To-Date gains, which stood at 0.48%, just as YTD gain in market capitalization stood at N98.31tr, representing a 0.48% rise.
Bullish Sector Indices
All the sectorial performance indexes were bullish, except for the NSE Industrial goods that closed flat, while the NSE Insurance led the advancers, gaining 3.02%, followed by Banking, Consumer goods and Oil/Gas that were higher by 0.75%, 0.42% and 0.06% respectively.
Market breadth turned positive, as advancers outweighed decliners in the ratio of 23:16; even as transactions in volume and value terms dropped by 46.41% and 57.32% respectively, while stockbrokers crossed 249.55m shares worth N2.18bn, down from previous day’s 465.67m units valued at N5.12bn. The day’s volume was boosted by Japaul Gold, Access Bank, Mansard Insurance, UBA and Transcorp.
NEM Insurance and BOC Gases were the best-performing stocks during the day, after gaining 9.89% and 9.52% respectively, and closing at N2.15 and N11.50 per share, on earnings expectations and positive market sentiments. On the flip side, Oando and FTN Cocoa lost 10% and 9.72% respectively, at N3.33 and N0.65 per share, on profit-taking and market forces, given that there is yet no news about the status of Oando’s financials, following its inability to submit a financial report since 2019 in the aftermath of its face-off with the capital market police- Nigeria’s Securities & Exchange Commission (READ MORE).
Market Outlook
We expect the mixed performance to continue on profit booking and buying interests in undervalued and dividend-paying stocks ahead of the market major earnings reporting season, especially as low interest rates and oil price oscillation have so far supported the Nigerian economy and equity market. There is also the likelihood of reversal of trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.
The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.
Again, the current undervalued state of the market offers investors 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 in the rest of the year.
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