Markets

ANALYSIS: NSE uptrend may linger ahead of year-end window dressing by fund managers

Published

4 years ago

Dec 28, 2020

Market Update for the Week Ended December 24 and Outlook for Dec 29-31

By Investdata Analysts

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Nigeria’s stock market sustained its bullish run last week as the seeming Santa Claus rally continued ahead of the New Year holiday, despite profit taking in the last trading session amidst the wait for year-end window dressing and portfolio reshuffling.

The benchmark All-Share index broke out psychological lines between 37,000 and 38,000, as well as the 37, 856.12 – 38,669.20 basis points resistance lines on high buying pressure, driven by high cap stocks, which together control 70% of the market capitalization. There was also positive sentiment for dividend paying stocks with attractive valuations, amidst the repositioning and year-end window dressing among investors.

The year-to-date gains on the Nigerian Stock Exchange (NSE) notwithstanding, Investdata believes the market still has some inherent value, for those investors who know where to look. We note that during the outgoing year, analysts and investors have spoken a lot about valuation, even as the equities repeatedly make new highs, with questions centered around overvalued stocks and the market’s overbought region.

History will forever link the year 2020 with the Coronavirus pandemic. However, investors may well remember 2020 as the year when players who invested following recommended in Investdata’s April 2020 video titled “Strategies To Invest In Changing Market Dynamics & Recession,” as well as the monthly Investdata Buy & Sell Signal, had reasons to celebrate.

So if you are a trader or investor that is willing to zig while other are sagging in the new year, now might be the right time to look at adding some of the 10 golden stocks for 2021 to your position or portfolio, ready for whatever the new normal will bring in the new year.

Putting it mildly, 2020 has been truly a mixed and challenging year for many market players. For investors, it has been a tale of two markets, but those who have been able to stick to their investment plan, while following investdata’s buy and sell signal and ignoring market volatility, have fared better. Despite the prevailing economic situation, we are profiting and living through as players. We should all count our blessings and proceed to reposition our portfolios, staying with the 10 Golden Stocks for 2021.

In just four trading sessions of last week, Investdata’s 10 Golden Stocks for 2021 have given 4.66% in average returns from previous week’s 3.19%, better than the yield for 364-day Treasury Bills of 3.3% in the last auction. This is an indication that participants our December 5 INVEST 2021 SUMMIT are already in profit.

However, we must warn at this point, that investors should not underestimate the possibility of market correction any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend. The summary is: anything is still possible, considering the prevailing trade pattern as the index rally outside the upper limit of the Bollinger band.

Movement Of NSEASI

The composite NSEASI closed the week higher at the end of the four-day week, following the public holidays declared to mark the Christmas by the Federal Government on Friday, after recording three up sessions and one flat day, maintaining a bull-trend. The index opened for the week on the upside Monday, gaining 1.74% due to rekindled bargain hunting and buying sentiment; a trend that continued on Tuesday with the benchmark index closing 1.20% up. The positive trend was sustained by the midweek, when the index closed 2.4% higher, breaking out the 38,000 level, before closing 0.01% flat on Thursday due to profit booking. This left the week’s total gain to 5.42%, down from previous week’s 7.46% rise, on a less than average traded volume and positive breadth.

Specifically, the index garnered 1,995.26 basis points, closing at 38,800.01bps, after opening the week at 36,804.75bps, touching an intra-week high of 38,873.10bps, from its lows of 36,798.74bps. This resulted from seasonal forces and increased buying interests in high cap stocks. Also, market capitalization for the period rose by N1.04tr in the week, closing at N20.28tr, from the previous weekend’s N19.24tr, representing a 5.42%value gain.

The week’s advancers’ table was dominated by low cap stocks, reflecting the positive buying sentiments, as the trading pattern supports recovery from recession as Santa Claus rally continue, as breadth was positive to reveal higher prices and uptrend among the NSE 30. During the period, advancers outpaced decliners in the ratio of 35:18 on a high buying pressure and positive momentum as Money Flow Index read 85.50bps, as against 84.03 points in the previous week. During the week, Chellenearms and Juli Plc released their belated full year earnings reports.

NSEASI Weekly Chart Movement

NSE index action maintained uptrend during the week on a positive sentiment, while smart money accumulates position among the high cap stocks ahead of the 2020 financials release in the New Year. The index is trading above the 50 and 200-day, as well as the seven-day moving average to breakout new resistance levels on a less than average traded volume and high buying pressure. This is likely to continue as more stocks join the rally in the last few trading days of the year.

Nevertheless, it is expected that market correction can occur at any time especially, as the new uptrend is set to breakout the 39,213.42bps and the 40,000bps level, as well as the 23.6% Fibonacci retracement lines to support the recovery move.

The market’s recovery moves and bullish trend remain strong as factors for the market continue to increase and propel positive momentum. The strong resistance level to watch out for is the 41,000 region, a breakout of which will attract more funds for breakout traders. As Nigeria crude oil is trading above $51 in the international market and the government has earmarked N424m to import the Coronavirus vaccines in January 2021.

However, we envisage a positive outlook while not ruling out profit booking at any moment, after nine straight days of rally. Also, the impact of the border reopening, expected COVID-19 vaccine importation, high liquidity, and extension of the 2020 capital budget implementation. There is also the impact of oil prices trading above $51 per barrel, from its March 2020 low, given strong Money Flow Index, as MACD remains in the bullish zone on a weekly chart. ‘Buy’ volume for the period stood at 94%, with total transaction index at 1.10.

NSE Uptrend

Bullish Sectoral Indices

The week’s performance indexes across sectors were bullish, except for the NSE Banking that closed 1.03% lower, while NSE Industrial Goods led the advancers after gaining 12.05%, followed by Insurance, Oil/Gas and Consumer goods which closed 6.01%, 1.38% and 0.28% higher respectively.

The general market outlook remains strong and mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolio 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 rally calls for value investing as numbers from some companies and sectors were expectedly 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.

Transactions in volume and value terms were up by 46.03% and 128.39% respectively as investors transacted 2.76bn shares worth N40.31bn, from the previous week’s 1.87bn units valued at N17.65bn. Volume was driven by trades in the Financial Services, Consumer and Industrial goods sectors, particularly stocks like Access Bank, Zenith Bank, AXA Mansard Insurance, Lafarge Africa and Dangote Cement.

The best performing stocks for the week, were FTN Cocoa and Japaul Gold which gained 43.55% and 41.18% respectively, closing at N0.89 and N0.48 each on market sentiments, while Trans-Nationwide Express and John Holt lost 9.20% and 8.93% respectively, at N0.79 and N0.51 per share on market forces.

Market Outlook

We expect an uptrend in the last few trading day of the year on window dressing by fund managers, as players continue to interpret the recent improved activities in money and fixed income space, also the expected economic data, coupled with the ongoing portfolio repositioning ahead of 2020 full year earnings reporting season in Q1 of 2021. We recommend that investors stay in stocks as the vaccine led rally in global markets and inflow of funds into equity space in emerging markets due to prevailing low interest rates will support equity assets. Also, the ongoing reforms in the exchange market are likely to attract foreign portfolio investors as many stocks on the exchange are still undervalued.

Meanwhile, market correction is evitable, being a regular behavior of stock markets after witnessing a rally. Any pullbacks at this phase of market recovery will support the upside potentials. This is especially as many fundamentally sound stocks remain underpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent TB rates hike.