Profit-taking ahead amidst strong recovery on NSE, as investors await Tier-1 banks

Market Update for November 10

By Investdata Analysts

Tuesday’s trading on the Nigerian Stock Exchange (NSE) remained very volatile and mixed to continue its bull rampage as the composite All-Share index again closed positive, extending the buying momentum for the third consecutive day after side-trending.

The high traded volume has supported the V-shaped rally which reveals strong market fundamentals with liquidity and the better-than-expected corporate earnings that indicate healthy companies, even in the face of the current economic downturn.

The recent massive surge in equity prices and by extension, the NSE indexes, has pushed more stocks to their new 52-week highs as the market trades above the shortest and long-moving average of 7 days and 200 days on positive sentiments. Also important is the fact that technical indicators are looking up and in the same direction with the general market.  Candlestick formation and the chart pattern at the end of Tuesday’s trading signaled that profit taking and slight correction are underway.

Tuesday’s trading opened slightly on the downside in the early hours of the day trade and later rebounded at mid-morning and oscillated between midday and late afternoon on continued accumulation in blue chip and growth stocks. This pushed the index to an intra-day high of 32,647.10 basis points where it closed, from its low of 30,738.92bps.

Market technicals were positive but mixed, despite a slide in volume traded when compared to the previous session in the midst of positive breadthand sentiment, as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. Total transaction volume index stood at 1.32 points, just as momentum behind the day’s performance remained strong, with Money Flow Index looking up at 94.11 points, from the previous day’s 94.85points. This is an indication that funds entered the market in general.

Index and Market Caps

At the end of Tuesday’s trading, the benchmark index soared 404.858bps, closing at 32,647.10bps, representing a 1.3% growth, having opened at 32,243.05bps, just as market capitalization jumped by N211.13bn to a record high of N17.06tr, which also represented a 1,3% value gain.

The uptrend was impacted by the increased buying sentiment in stocks like MTNN, Stanbic IBTC, Ardova, Dangote Sugar, Cadbury, and GSK, among others. This raised Year-To-Date gain to 21.63%, while Market capitalization YTD climbed to N4.09tr, representing a 31.28% above the year’s opening value.

Bullish Sector Indices

All the sectorial performance indexes were bullish, led by NSE Insurance index which gained 3.28%; followed by the NSE Oil/Gas, 1.32%, while Consumer goods, Banking and Industrial Goods closed 1.11%, 0.93% and 0.22% higher respectively.

Market breadth was positive as advancers outweighed decliners in the ratio of 39:11, while transactions in volume and value terms were down by 8.99% and 6.07% respectively as investors exchanged 578.78nm shares worth of N7.74bn, compared with the previous day’s 636.01m units valued at N8.24bn. Volume was driven by trades in Zenith Bank, FBNH, Access Bank, Fidelity Bank and Guaranty Trust Bank.

The best performing stocks for the session were Cadbury and GSK which gained 10% apiece, closing at N9.35 and N6.60 respectively, on market trend and forces. On the flip side, ABC Transport and PZ lost 8.82% and 5.38% respectively, closing at N0.31 and N4.40 respectively on market forces and profit booking.

Market Outlook

Profit taking is underway, as the bearish hummer formation signals a reversal of trend, but the strong and faster recovery may continue, depending on market forces at the midweek’s session. This will depend on the quality of Q3 score-cards presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped reposition investors’ portfolios on the strength of sector and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, 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 rest of the year.

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited