Expect Reversal On Market Pullback, As Many Stocks Trade Within Buy Range

Market Update September 22

The bear-run on the Nigerian Exchange persisted at the midweek as the NGX All-Share index suffering yet another slight pullback for a third consecutive trading session, despite the marginal decline in momentum, low traded volume, and negative breadth. The calmness and prevailing trade pattern signal the wait-and-see attitude of players and low liquidity in the market.  

With quarter-end and Q3 earnings reporting season drawing closer, Investors and traders are still digesting and studying the recent corporate earnings and economic data, while expecting policy statements capable of propelling market direction.

The seeming bearish state of the market is creating buy opportunities for discerning investors and traders that understand equity market dynamics and the power of seasonality in trading stocks since many stocks are trading within their buy ranges ahead of the Q4 season. Technically, the prevailing low volume traded and the seeming divergence between the NGX index action and MACD histogram suggests that markup by smart money is underway, which we wait to confirm during the trading session of Thursday or Friday.

Meanwhile, Wednesday’s trading opened slightly on the downside and oscillated mildly throughout the session on selloffs and buy interests in medium and low-priced stocks. This pushed the benchmark index to an intraday low of 38,846.86 basis points, from its highs of 38,874.92bps, after which it closed below the opening point at 38,857.69bps.

Market technicals were negative and mixed as volume traded was lower than that of the previous day with breadth favouring the bears on negative sentiments as revealed by Investdata’s Sentiment Report, showing 21% ‘buy’ volume and 79% sell position. The total transaction volume index stood at 0.69 points, just as the momentum behind the day’s performance was weak, as Money Flow Index was looking down at 17.90points, from the previous day’s 25.79points, an indication that funds left the market.

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Index and Market Caps

At the close of midweek’s trading, the composite NGXASI dropped by 21.16 basis points from its opening level of 38,873.85bps, representing a 0.05% drop, just as market capitalization fell by  N11bn, closing at N20.24tr, from the opening value of N20.25tr, also represented 0.05% value loss.

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The midweek’s downturn was driven by selloffs in Access Bank, United Capital, Vitafoam, Zenith Bank, GTCO, UBN, FCMB, UACN, and Chams among others, thereby impacting mildly on Year-To-Date loss that rose to 3.52%. This was just as the cumulative loss in market capitalization stood at N814.22bn, representing a 3.86% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, with the NGX Banking and Consumer Goods index closing 0.83% and 0,02% lower respectively, while the NGX Insurance Index led the advancers, gaining 1.21%, followed by Oil/Gas and Industrial Goods with 0.50% and 0.01% respectively.

Market breadth was negative, as losers outnumbered gainers in the ratio of 17:13, while activities in volume and value terms were down after stockbrokers traded   155.77m shares worth N1.51bn, compared to the previous day’s 184.44m units valued at N2.34bn. Volume was driven by trades in Universal Insurance, UBA, Zenith Bank, GTCO, and United Capital.

Transcorp Hotel and Pharmdeko were the best performing stocks as they gained 10% and 9.88% to close at N4.95 and N1.78per share respectively on market forces. On the flip side, Veritas Kapital Assurance and UCap lost 8.70% and 5% respectively, closing at N0.21 and N8.55 per share purely on profit-taking.

Market Outlook

We expect reversal as investors and traders take advantage of the market’s pullbacks to position, while many stocks are trading within their buy ranges, a situation expected to attract funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data ahead of the month and quarter-end, as well as the continued repositioning of portfolios for the year’s last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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