NGSE Mixed Sessions May Linger On Profit-taking, Interests In Undervalued Stocks

 

Market Update for January 5

It was a mixed and bearish session on Tuesday as profit taking hit Nigerian Stock Exchange (NSE), although expected, halting the recent rally on above-average traded volume, as market players cashed out their profits from high and medium cap stocks.

In equity investment and trading, taking profit is as important as positioning in sound fundamentally stocks. After all, you only make money when you actually close the position and take money off the table.

The key question is: when exactly do you take profit? This is one of the reasons Investdata Buy and Sell Signal Setup is different, because we have a buy range, stop loss and sell target, with sell alert given immediately it is attained. Research has shown that most traders and investors in our market today, only know when to buy and do not know when to sell. This tells you that many retail players do not have a clear trading and investing plan, because every trading plan or objective must have entry and exit strategy to achieve set goals.

Just as profit taking is an integral part of stock market investing, investors should have profit taking strategy to know when exactly they should sell their positions to realize profit. In the same way, many traders don’t have a profit taking strategy in place when trading. Often they say ‘I will sell the stock when I have made enough money,’ and there is never ‘enough money,’ which is the problem.

Tuesday’s profit taking or pullback was long expected, after the unprecedentedly 50.03% recorded in year 2020. But this correction will add more momentum to the general market recovery moves that is ongoing on the exchange. Just as we have always warned, investors should not underestimate the possibility of minor corrections at any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend.

The summary is: considering the prevailing new trading pattern and the fact that the index is rallying outside the upper limit of the Bollinger band, signaling sell, while other technical indicators are showing overbought and support a possible market pullback.

Tuesday’s trading opened on the downside and was sustained for the rest of the session, despite oscillating  on profit booking and portfolio repositioning that pushed the NSE index to an intraday low of 40,142.94 basis points, from its high of 41,149.86bps, and thereafter closed below its opening figure at 40,396.16bps on a negative breadth.

Market technicals for the session were negative and mixed with volume traded higher than the previous day’s in the midst of breadth that favours the bears on selling sentiment as revealed by Investdata’s Sentiments Report showing 75% ‘sell’ volume and buy positionof 25%. Total transaction volume index stood at 1.14 points, just as impetus behind the day’s performance was strong, with Money flow index looking up at 91.86pts, from the previous day’s 88.63pts, indicating that funds entered the market, despite the profit taking.

Index and Market Caps

The key performance NSE All Share Index at the end of Tuesday’s trading shed 751.25 basis points, after opening at 41,147.39bps representing a 1.83% decline, just as market capitalization fell by N392.81bn, closing at N21.12tr, from an opening value of N21.52tr, representing a 1.83% depreciation in value.

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Tuesday’s downturn was driven by profit taking in stocks like BUA Cement, MTNN, Okomu Oil, Guaranty Trust Bank, Zenith Bank, Flour Mills, UBA, FBNH, Guinness, Fidelity Bank and Oando, among others. This impacted negatively on Year-To-Date gains, which stood at 0.31%, just as YTD gain in market capitalization was N62.23 billion, representing a 0.31% up.

Bearish Sector Indices

Performance indexes across the sectors were bearish, except for the NSE Insurance that closed higher by 1.56%, while NSE Bankingled the decliners after losing 2.98%, followed by Industrial, Consumer goods and Oil/Gas that were down by 2.74%, 2.37% and 0.03% respectively. 

Market breadth turned negative, as decliners outnumbered advancers in the ratio of 34:16; even as activities in volume and value terms were up by 119.73% and 263.56% respectively, while traders exchanged 465.67m shares worth N5.12bn, from the previous 211.93m units valued at N1.41bn. The day’s volume was impacted by Transcorp, Zenith Bank, FCMB, Japaul Gold and Access Bank.

BOC Gas and NEM Insurance were the best performing stocks for the day after gaining 9.72% and 9.5% respectively, closing at N10.50 and N1.96 per share, on market sentiment and earnings expectation. 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.

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 that has so far supported the Nigerian economy and equity market. There is also the likelihood of reversal of trend, 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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