Mixed Trend Ahead, But Pullbacks Offer Prospects For New Positioning

 

Market Update for the Week Ended April 9 and Outlook for April 12-16

Transactions on the Nigerian Stock Exchange last week were mixed and volatile, closing on another negative note  despite recording a marginal uptrend for three straight sessions of  high buying sentiments  and low traded volume . This was is a signal that players are repositioning their portfolios in line with sector and company performances, guided by corporate earnings.

The seeming renewed buying interest in consumer goods, banking, energy and low priced stocks that helped the market to resist further decline as indicated by the candlestick formation at the end of the week trading as corporate actions continue to guide in and out movement of income investors. 

The changing investment environment with fixed income rising yields and improved dividend yields in stock market due to pullbacks have left many investors confused as stock prices are yet respond to released numbers and dividend payouts. However, ability to anticipate the trend in bonds will help you better understand the stock market trend, as high interest rate favour other investment window while low rates and high inflation direct funds to equity market.

Investing and trading requires patience, discipline, and impartiality under the stress of uncertainty and risk. Unless you are indifferent, your brains just aren’t naturally wired that way. I get a lot of emails and phone calls daily asking if the markets are hitting their bottom and about to reverse, or if the fixed income market has hit its top with the rising yields.

Nonetheless, the early stage of recovery and current happenings in the environment offer big opportunities as some sectors and companies continue to benefit from the ongoing COVID-19 vaccination now driving global and domestic recovery. This is in turn supporting the uptrend in oil price, despite the ongoing oscillation.

Market players at this point must, therefore, target the right sectors and stocks for higher capital gains and yields to stay above inflation in the short-term, following which the equity market remains the best investment hedge, regardless of the rising yields in the fixed income market.

Movement Of NSEASI

The buying dominance during the four trading sessions of last week did not impact positively on the benchmark index with market breadth closing negative, despite recording three sessions of up market.

Trading for the week opened after the Easter holidays on the downside, losing 0.39% before rebounding by midweek with marginal gain of 0.02%, this trend was sustained on Thursday and Friday when the composite index inched 0.07% and 0.17% respectively a on strong buying sentiments among the medium cap and low priced equities. This brought the week’s total loss to 0.13%, a seeming recovery from previous week’s 0.76% decline.

Consequently, the key performance NSE All-Share index shed 50.35basis points during the week, from its opening level of 38,916.74bps, while gliding between an intra-week low of 38,596.16bps and high of 38,928.89bps, due to mixed sentiments and selloffs in high cap stocks. Also, market capitalization lost N26.33bn, closing at N20.34tr from the previous week’s N20.36tr.

As usual in the recent weeks, the kobo stocks dominated the advancers log as profit taking hit high cap equities, amid the markdown activities in Stanbic IBTC and FCMB. Also, trading and price patterns revealed the presence of selloffs and accumulation in some stocks in the midst of mixed sentiment.

The period’s negative breadth was due to decliners outnumbering advancers in the ratio of 40:17 on a buying sentiment and relatively weak momentum as Money Flow Index read 48.57bps, down from 52.89 points in the previous week. During the week also, Okomu Oil and Presco released their full-year earnings reports, with their directors recommending N7.00 and N2.00 dividends per share respectively. Also, ABC Transport and Studio Press presented their audited accounts for December 31, 2020, but were silent on corporation actions. 

NSEASI WEEKLY CHART MOVEMENT

The NSE index action of bearish trend subsided, despite Tuesday’s dip, as the All-Share continued on a negative and even volatility note in the midst of changing price patterns and trading environment. Investors continued to accumulate positions in dividend paying and growth stocks ahead of the 2020Q1 earnings releases.

Also, we note that the index has broken down the 14-Day Moving Average which is above the 20, 50 and 200-DMA on a weekly chart, despite breaking down the 39,000bps-mark’s strong support level on a low traded volume and buying sentiments. This is likely to support the positive momentum witnessed as more players’ position for Q1 earnings, based on the corporate performances expected.

Nevertheless, we see the market maintaining this uptrend, especially as investors look to economic data and corporate earnings, just as the index trades above 38,000 basis points.

The strong support level to watch out for on the NSE is within the 38,642,12bps and 38,309.63bps, and a breakdown of these levels will attract new positioning by traders. This is happening at a time crude oil is trading above $60 per barrel at the international market, while the distribution of vaccines by the various state governments is ongoing.

However, we envisage a mixed outlook for the rest of Q2, while not ruling out profit booking, especially after the market recorded an uptrend last year.

Our expectation of a mixed outlook is hinged on such factors as the possible impact of corporate earnings, a mismatch of monetary and fiscal policies, implementation of the 2021 capital budget, as well as implications of oil prices oscillating around $60 and $70 per barrel on the nation’s revenue. We note too that impact of the Money Flow Index and MACD are bearish on a weekly chart.

BearishSectoral Indices

The sectorial performance indexes were down, except for the NSE Consumer Goods that closed 1.12% higher, while NSE Banking led the decliners after losing 2.25%, followed by Industrial Goods, Insurance and Energy that closed 1.49%, 0.66% and 0.31% lower.

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 pullbacks call for portfolio adjustments and realignments, as unaudited and audited 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.

Activity in volume and value terms were down by 38.83% and 53.74% respectively, as players traded 887.04m shares worth N9.19bn, compared to the previous week’s 1.45bn shares valued at N19.04bn. Volume was driven by trades in FinancialServices, Conglomerate and Oil/Gas  sectors, particularly Zenith Bank, Access Bank,  Guaranty Trust Bank and Transcorp.

Japaul Gold and Consolidated Hallmark Insurance were the best performing stocks for the week, gaining 40% and 12.50% respectively, and closing at N0.63 and N0.36 each on market forces and earnings expectations, while Guinness Nigeria and Sterling Bank lost 17.27% and 15.68% respectively, at N29.74and N1.56 per share on profit taking.

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market and stock market dividend yields. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in value and underpriced growth stocks, while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q1 earnings reports, until the next MPC meeting in May.

Also, 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 new year.

https://mail.google.com/mail/u/0/