Caution Still, Amid Month-End Realignments, Investors Await Interim Dividend Stocks
Market Update for the Week Ended August 20 and Outlook for August 23-27
It was a mixed week of up and down movement on the Nigerian Exchange as the key performance index closed marginally lower on a low traded volume and positive market breadth, amidst the continued portfolio repositioning and sector rotation among investors and traders.
This had propelled the seesaw movement that short-lived the positive outing seen in the previous week as sentiments and buying interests moved to medium cap and penny stocks with high upside potentials judging by upbeat earnings emanating from these companies supporting the share prices.
Technically the broader market remained positive and strong as revealed by the multiple time frame and indicators such as the money flow index and other momentum indicators. The zig-zag chart pattern and the consolidation channel of the NGX index on the daily and weekly charts show that it is still seeking positive information and statement to trigger a breakout. But for proper market timing and profitable trading, you need technical analysis as a market player.
For the juiciest returns, only trade and invest in the best combination of value, safety, and timing, which you can only determine with the aid of technical tools. Value stocks have extraordinary fundamentals and timing in forecast earnings, earnings growth rates, upside potentials, up-trending prices, and the ability to resist several price declines.
You need to keep up with the current economy by moving your money from the fixed income market where real returns are negative, into the equity space for better returns that can help you stay above inflation, especially in penny stocks. This is the time to position by buying low and possibly selling high for massive profit, especially at this time when more medium and low cap stocks daily hit new 52-week highs.
The week’s market sentiments gravitated towards stocks that had positive investor reactions, especially in the healthcare sector and low-priced equities that topped the gainers’ chart during the period. The falling oil price in the international market now at $65 may not affect the Nigerian market immediately as it continues to be dominated by domestic participants.
Overall, the economy’s recovery remains on a slow path even as the inflation rate continues to moderate Y-o-Y, driven by base year effects. Despite this moderation in the inflation rate, prices of basic food items remain on the rise, traceable to the deficiency in the supply side and heightening insecurity across the country. Moderation in the inflation rate might continue towards the end of the year, however, increased government spending (budget deficit financing), exchange rate pressure in the parallel market and possible subsidy removal remain threats to the long-term CBN-MPC benchmark single-digit target by 2022.
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Movement Of NGXASI
The NGX All-Share index recorded three sessions of the down market and two up as the buy and sell sides battled for dominance with the benchmark All-Share index giving up 10 points in the midst of mixed trends and sentiments. Trading activities opened for the period on a negative note, sliding by 0.04% to halt the previous week’s session’s bull-run, but reversed on Tuesday when the index made a 0.11% recovery. There was another slowdown by midweek when the index slipped by 0.01%, before turning north on Thursday with more buyers taking positions in high cap stocks, a situation that pushed the index up by 0.31%. Friday’s trading was down expectedly by 0.50% followed the price adjustments in MTNN and profit-taking in medium cap stocks that rallied recently. These brought total loss for the week to 0.10%, compared to previous week’s 1.83% gain.
Consequently, the composite index lost 39.26bps, closing at 39,483.98bps from its opening level of 39,522.34bps, after touching an intra-week low of 39,257.85bps from its highs of 39,678.04bps on mixed sentiments and profit-taking in high cap stocks. Also, market capitalization fell by N20bn, closing at N20.57tr, compared to the previous week’s N20.59tr, which also represented a 0.10% value loss.
During the week the share prices of Consolidated Hallmark Insurance, Flour Mills, Meyer. Total Nigeria and MTNN were markdowns for the dividends of two kobo, N1.65, N1.50, N4.00, and N4.55 respectively recommended by their directors. These also contributed to the week’s pullback or correction.
The gainers’ table for the week was dominated by medium cap companies, as market players positioned in Honeywell, Pharm Deko, Neimeth Pharmaceuticals, BOC Gases, Nahco, UACN, Wema Bank, MRS Oil, and Courtville in continuation of portfolio reshuffling in the midst of market oscillation and changing trading environment. Price actions revealed the presence of buyers in the market, a situation that reflected on the sectorial indexes
Market breadth for the period was positive despite the pullback on low traded volume to signal caution and distribution phases, as the week advancers outnumbered decliners in the ratio of 36:33, on a mixed sentiment for the period showing 54% ‘buy’ volume and 46% ‘sell’ position. Money Flow Index was up, reading 66.53bps from the previous week’s 66.47 points, an indication that funds entered the market.
NSEASI WEEKLY CHART MOVEMENT
From the above, the NGX index action has formed a double top chart pattern on a weekly time frame, with the candlestick formation indicating weakness and indecision among traders, but we need to watch out for a breakout of the black line which is a strong resistance next week as all eyes are on the expected numbers from the interim dividend-paying stocks and end of the month window dressing, after forming a ‘W’ that supports a continuation of the trend. Also, don’t forget the possibility of profit-taking at this level. Already, the daily chart has signaled a correction or pullback.
Bearish Sectoral Indices
Performance across sectors was bearish, except for the NGX Industrial Goods that closed 1.85%, while the NGX Consumer Goods led the decliners after shedding 6.31%, followed by Insurance, Banking, and Energy with 0.96%, 0.82%, and 0.61% respectively. Activities in volume and value terms were down, with investors exchanging 866.54m shares worth N12.26bn, compared to the previous week’s 1.61bn units valued at N12.59bn. The week’s volume was driven by trades in Financial Services, Consumer goods, and ICT, particularly Honeywell Flour Mills, Transcorp, GTCO, Flour Mills, and Access Bank.
The best-performing stocks during the week were Honeywell Flour Mill and Pharma-Deko, which gained 46.34% and 44.54% respectively, closing at N3.00 and N1.72 per share on improved earnings and market sentiment. On the flip side, Meyer and SCOA lost 66.10% and 18.46% respectively, at N0.20and N1.59per share, purely on price adjustment and selloffs
Outlook for the week
We expect a mixed market this week as portfolio reshuffling and sector rotation continued in the midst of expected profit-taking from the recent rally. Considering that the March accounts and half-year interim dividend qualification dates for most companies are within this month. So there will be activities as investors participate in the interim dividend. So, let us keep our eyes on market breadth and direction.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $68pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support the global and domestic economic recovery, enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half-year earnings
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Ambrose Omordion
CRO|Investdata Consulting Ltd
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