With NGSE Outlook Dicey, Time To Protect Capital In Short, Medium-Term

Market Update for the Week Ended February 12 and Outlook for February 15-19

It was another week of bear transition in February 2021, extending from what started in the first week of the month amidst profit taking and selloffs, but had a change in price pattern and sentiment in the last two trading sessions. This signals a reversal in trend and needs to be confirmed in the new trading week.

With 2020 full year corporate earnings and economic data expected during the new week to influence market direction depending on the numbers, especially from the other financial sector players like United Capital, Africa Prudential, among others. There is also the expected inflation report for January that would give further insights to the nation’s economic wellbeing. Primarily, all eyes are fixed on these financials which would begin to poor in any moment soon, giving investors a sense of direction.

During the week, worried investor and traders panicked out of their positions while pullbacks and corrections continued. But bargain hunters with eyes ever on emerging opportunities watched the market and took advantage of the low prices to position in high dividend-paying companies. Despite the continued drop in the market index, the situation reveals some measure of confidence among players, ahead of the earnings reporting season.

As mentioned earlier, the price pattern of many stocks at the end of Thursday and Friday’s trading reveals a sharp reversal, which will be confirmed by activities in the market on Monday and Tuesday in the new week.

As such, it is important to let your investment objective, entry and exit strategies guide you to survive and profit from the expected new trend, if the full-year earnings reports and dividend news fail to drive and support the trend, a big rotation in sector trends should also guide you, going into the future.

Do not allow activities in the sectors and high cap stocks that rallied sharply in previous year, to influence your decision, because their price movement affects the market’s movement up and down also. It is necessary to focus on sectors and high yield dividend-paying stocks with strong growth prospects in 2021.

With the market entering another season, we advise investors to play dividend stocks and reduce their investment risks at the moment, even as another possible strategy is to sell off some stocks to reposition later at lower prices, or to hold position. You can also buy more of high yield, dividend-paying stocks at a stronger support level to average down, since the market is the entering earnings season.

Movement Of NSEASI

The week had four sessions of down markets and one gain, due to profit-taking and selloffs driven by panic selling. There was also slight improvement in fixed market yields and portfolio realignment in the face of oscillating oil prices in the international market.

The week began with the composite NSE All-Share index opening on the downside, extending previous week’s negative outing. On Monday, the NSE index lost 0.35% to profit booking and indecision among investors and traders, a trend that was sustained on Tuesday and midweek when the benchmark index closed 0.13% and 1.96% lower respectively on selloffs in high cap stocks.

The bearish trend was halted on Thursday as the index recovered a 0.78% gain on the strength of bargain hunters, a situation that was short-lived on Friday when the index closed lower after high cap stocks recorded loses. This brought the week cumulative loss to 3.04%, almost double from previous week’s 1.66% decline, on above average traded volume and negative breadth.

Specifically, the key performance index lost 1,269.29 basis points during the week, closing at 40,439.95bps, after opening the week at 41,709.09bps. With the period, the index touched an intra-week low of 39,918.38bps, compared to a high of 41,737.05bps, a situation attributed to selloffs across various categories of stocks. Also, market capitalization shed N660bn to N21.16tr, from the previous weekend’s N21.82tr, representing 3.04% depreciation in value.

Again, low cap stocks dominated the week’s advancers’ log, reflecting the selloffs among high and medium cap stocks, with the trading and price pattern revealing profit taking and selloffs in the midst of mixed sentiment as dividend stocks price resist further decline.

During the period, decliners outpaced advancers in the ratio of 55:16 on a selling sentiment and weak momentum as Money Flow Index read 73.22bps, down from 80.50 points in the previous week. During the week also, two companies released their unaudited 2020 full-year results, as more firms notified the investing public of their closed period and board meetings.

NSEASI WEEKLY CHART MOVEMENT

The NSE’s index action remains bearish and volatile in the midst of changing price patterns on mixed sentiments, as smart traders accumulate positions in dividend-paying stocks ahead of the release of 2020 financials between this month and next. Also, the index is trading below the shortest Moving Average of seven and above 50 and 200-DMA, despite breaking down the 41,000-mark strong support level on above-average traded volume and selling sentiments. This is likely to reverse as more players’ position for the rest of the month in expectation of earnings.

Nevertheless, it is expected that the market will rebound at any time soon especially, as early filers start releasing their numbers to the market and trading above the 41,000bps level.

The strong support level to watch out for on the NSE is within the 40,000 and 39,812.46bps, and a breakdown of these levels will attract new positioning by traders. This is coming at a t time crude oil is trading above $60 at the international market, while the government is expecting the first batch of the Coronavirus vaccines. 

However, we envisage a positive outlook for the rest of Q1, while not ruling out profit booking any time soon, especially since the market had maintained an uptrend since last year.

Our positive outlook is hinged on such factors as the possible impact of the Central Bank of Nigeria (CBN) ban on cryptocurrencies, the Federal Government’s reopening of the nation’s land borders, expected COVID-19 vaccine importation, and high liquidity. There are also other factors like an extension of the 2020 capital budget, implications of oil prices trading above $59 per barrel on the nation’s revenue, compared to its March 2020 low. This is given the strong Money Flow Index, as MACD remains in the bullish zone on a weekly chart.

Buy’ volume for the period stood at 29% and sell position at 71% with total transaction index at 1.36.

Bearish Sectoral Indices

The week’s sectoral indexes closed the week bearish, led by the NSE Banking which lost 8.76%, followed by Insurance, Industrial Goods, Oil/Gas and Consumer Goods that closed 6.46%, 5.70%, 1.03% and 0.93% lower respectively.

The general market’s outlook remains dicey and mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

The recent market pullback calls for portfolio adjustments and realignments, as unaudited numbers from some companies and sectors will expectedly come mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.

Activities in volume and value terms were down during the week by 3.25% and 20.31% respectively, as investors exchanged 2.68bn shares worth N23.66bn, compared to previous week’s 2.77bn units valued at N22.69bn. Volume was driven by trades in Financial Services, Consumer Goods and Conglomerates sectors, particularly stocks like Living Trust Mortgage Bank, FBNH, Zenith Bank, Guaranty Trust Bank and Transcorp.

The best performing stocks in the week were Mutual Benefits Assurance and Morison Industry, which gained 10.53% and 10% respectively, closing at N0.42 and N0.55 each on market sentiments and forces, while NNFM and NEM Insurance lost 18.84% and 18% respectively, at N7.02 and N2.05 per share on market forces and profit booking. 

Market Outlook

We expect the market to experience mixed performance but on reduced losing momentum and profits taking, as bargain hunters increase their buying position on pullbacks to reposition their portfolios ahead of earnings expectations and reactions to expected numbers, especially as dividend yields remain relatively high.

We advise that you target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking the way of mispriced ones, especially given the low interest rates regime and sustained oil price rally that have so far supported the economy and equity market.

There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI read 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 expected 2020 full earnings reports, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.

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

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