Expect Mixed Trend, Slowdown In Profit Taking, Amid Positive Earnings, Falling Prices
Market Update for June 3
Trading activities on the Nigerian Exchange on Thursday held its strong support level, as the composite All-Share index extended its bull transition for the second consecutive sessions on a high traded volume and breadth that favored the bulls. This followed the buying interests in blue-chips like MTNN, Zenith Bank, Lafarge Africa, Nigerian Breweries, Flour Mills, and United Capital, among others.
The benchmark index’s action sustained it seeming recovery as momentum gradually returns to the market on strong buying sentiments which made it trade above its 14-Day Moving Average, heading to 20-DMA, just as Money Flow Index is looking up at 34.44 points. It is also important to note that MACD is set to cross its bullish signal line.
With trading turning positive so early in the month of June, with renewed buying interests ahead of economic data, qualification and mark down dates, especially the March financial year-end accounts expected to hit the market any moment from now. It is important to note at this point that should the bull successfully push the market above its May 19, 2021 position (38,446.09 basis points), it is an indication that the uptrend will continue.
Technically, in a recovery market, when new resistance becomes support such as the trend is revealing, the best trading strategy is to target very low returns from every position. Traders must, therefore, focus on value areas, using technical tools to identify resistance and support levels of any position taking at this point.
Investors should target fundamentally sound stocks with prospect to maintain an uptrend in their earnings. Specifically, investors should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
It is interesting to note that sector rotation has continued ahead of the half-year earnings season, as sectors and companies benefiting from the inflationary pressure and rising yields may likely post better-than-expected numbers. The trading pattern in the Treasury Bills and bond market were mixed and flat, with average TB yield in the secondary market staying at 6.10% while the last auction rate was 9.56%, with average yield of FGN bonds declining marginally to 12.22% in the secondary market. Meanwhile, events continue to unfold in the economy with expectations that there would be positive policy or statement from the government capable of turning things around for good.
On this note, investors should change their perception and trading strategies to stay ahead of the market, thereby ensuring that you are among the few who make money from equities’ trading, which is possible through regular learning of technical analysis and candlestick pattern. This is the advantage Investdata’s Comprehensive Stock Market trading videos and literature provide, covering fundamental and technical analyses that help you make effective and profitable trades.
Thursday’s trading started slightly on the upside and oscillated on positioning and profit taking that pushed the NGX index to an intraday high of 38,551.06bps, from its lows of 38,438.16bps, before closing slightly above its opening point at 38,548.24bps.
Market technicals were positive and strong as volume traded was higher than previous day’s in the midst of positive breadth and strong buying pressure as revealed by Investdata’s Sentiments Report showing 98% ‘buy’ volume and 2% sell position. Total transaction volume index stood at 0.97 points, just as the momentum behind the day’s performance was relatively weak, even as Money Flow Index looked up to 34.44pts, from the previous day’s 33.89pts, indicating that funds entered the market.
Index and Market Caps
At the end of Thursday trading, the NGX All Share index gained 65.72bps, closing at 38,548.24bps from an opening figure of 38,482.52bps, representing a 0.17% growth, just as market capitalization rose by N34.25bn, closing at N20.09tr from the opening value of N20.06tr, representing a 0.17% value gain.
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Thursday’s uptrend resulted from buying interests in NGX-30 stocks, among others, a situation that mildly impacted on Year-To-Date loss, reducing it to 4.27%, while the drop in market capitalization YTD stood at N964.48bn, representing a 4.57% drop below its opening value for the year.
Bullish Sector Indices
Performance indexes across sectors were up, except for the NGX Banking that closed 0.5% lower, while the NGX Consumer Goods led the advancers after gaining 0.23% followed by Insurance, Oil/Gas and Industrial goods thatwere up by 0.06%, 0.05% and 0.03% respectively.
Market breadth turned positive, as gainers outnumbered losers in the ratio of 19:15; while activities in volume and value terms were up, as players traded 249.69m shares worth N1.89bn, from the previous day’s 156.91m units valued at N1.33bn. Volume was driven by trades in Sovereign Trust Insurance, Zenith Bank, FCMB, Mansard and Fidelity Bank
University Press and Berger Paints were the best performing stocks, gaining 10% and 9.84%, while closing at N1.54 and N6.70 per share respectively on full-year earnings expectation and market forces. On the flipside, Computer Warehouse Group and Union Bank of Nigeria lost 9.63% and 6.72% respectively, closing at N1.09 and N5.55 per share, on selloffs.
Market Outlook
We expect a mixed trend and slowdown in profit taking in the midst of positive earnings and falling prices in the face of the global economic and market recovery across and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.
However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would 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 Q1 earnings reports and expected march full year audited accounts.
The NGX’s index action and indicators are heading in the same direction on a low traded volume and mixed sentiments in the midst of rising yield in bond and TB.
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.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
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