Expect Trend Reversal, profit Taking Slowdown Amidst Positive Earning, Falling Prices
Market Update for June 1
Trading for the month of June opened Tuesday, on mixed activities as it closed marginally lower, thereby extending the volatility of the previous month.
Investdata Research reveals that June performance over the last five years had been mixed, with three up market in 2016, 2017 and 2018, but down in 2019 and 2020.
The changing price pattern and trading environment, resulting from rising yields in the fixed income market among other factors have continue to influence activities in the equity space, despite the impressive corporate earnings and recovery oil prices in the international market. Also important is crude oil price currently hovering around the $70 per barrel region, which is expected to boost government spending and drive Nigeria’s weak economic recovery better than the Q1 GDP growth of 0.51% from last year Q4 of 0.11%.
However, Treasury Bills rates seem to be on a slight decline at the last auction, which if sustained may push funds into the equities segment, given that some investors and fund managers are hesitating to put their funds in stocks before now. The prevailing low price to earnings as a result of stronger corporate numbers and pullbacks ahead of the half year earnings season and interim dividend payment, presents huge opportunities for discerning investors and traders to build wealth.
It is interesting to note that sector rotation will continue in June, as sectors and companies benefiting from the inflationary pressure and rising yields that are likely to post better numbers when prices or rates continue to rise. The trading pattern we saw in the previous month may continue, given that many companies have June as mark down and payment dates, end of the quarter for fund managers window dressing, and repositioning of portfolios ahead of Q2 numbers and others.
This calls for a change in investor 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 provides, as it covers fundamental and technical analyses that help you make effective and profitable trades.
Investors should, therefore, wait to confirm the new trend by focusing on the sectors with strong potential to grow their earnings performance and that have high upside price rally outlook. Here, investors should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
Tuesday’s trading started slightly on the upside, but oscillated and pulled back in the afternoon on selloffs that dragged the composite NGX All-Share index to an intraday low of 38,3457.39 basis points, from its highs of 38,395.37bps. Thereafter, it closed slightly below its opening point at 38,414.37bps on a high traded volume.
Market technicals were positive and mixed, as volume traded was higher than previous day’s in the midst of positive breadth and mixed sentiment as revealed by Investdata’s Sentiments Report showing 69% ‘sell’ volume and 31% buy position. Total transaction volume index stood at 1.02 points, just as the momentum behind the day’s performance was relatively weak, even as Money Flow Index slide marginally to 37.01pts, from the previous day’s 38.14pts, indicating that funds left the market.
Index and Market Caps
At the end of Tuesday’s trading, the key performance index shed 23.51bps at 38,414.37bps from an opening figure of 38,457.39bps representing a 0.06% drop, just as market capitalization fell by N12.25bn, closing at N20.02tr from the opening value of N20.04tr, representing a 0.06% value loss.
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The session’s downturn was driven by profit taking in Seplat, Zenith Bank, Lafarge Africa, Dangote Sugar, and Honeywell, among others. This impacted mildly on Year-To-Date loss, increasing it to 4.61%, while the drop in market capitalization YTD increased to N1.04tr, representing a 4.91% drop below its opening value for the year.
Bearish Sector Indices
Performance indexes across sectors were down, except for the NGX Insurance that closed 1.51% higher, while the NGX Energy led the decliners after losing 0.86%, followed by consumer goods, Banking and industrial goods with 0.27%, 0.13% and 0.06% lower respectively.
Market breadth was positive, as gainers outnumbered losers in the ratio of 19:17; while activities in volume and value terms were up, with investors trading to 274.85m shares worth N2.63bn. This volume was boosted by trades in United Capital, Veritas Insurance, Eterna, Zenith Bank and, Transcorp.
Morison Industry and Lafarge were the best performing stocks during the session, gaining 9.57% and 9.43%, closing at N1.03 and N0.58 per share respectively on market forces. On the flipside, Champion Breweries and John Holt lost 9.91% and 7.94% respectively, closing at N1.91 and N0.58 per share, on selloffs and profit taking.
Market Outlook
We expect a reversal in 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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