Insight #1 on Free Stock Market Update

In the last one year after the pronouncement of the incumbent president as winner of the 2015 presidential election, the nation’s stock market had continued to nose-dive to formed a bearish channel, reflecting Nigeria’s falling macro-economic indices. Key indicators such as the nation’s external reserve continued to point southward, the naira lost a lot of flesh, with the exchange rate hitting an all high of N420/$, before adjusting to N380 in the back market, due to the limited available foreign exchange, in addition to the low purchasing power of Nigerians at a time inflation and interest rates soared high reducing the propensity to save and on that note what will drive investment.

The market had remained under the upper line of the bearish channel which is the blue line standing as a strong resistance level all through the one-year period. This was despite the seeming recovery recorded in the last two months of the first quarter, attributed to the early earnings surprises that ushered the earnings season of 2016.

The Composite NSE All Share Index for the first quarter of the year lost 3,336.03 points to close the period at 25,306.22 from an opening figure of 28,642.25 points, after it had recovered to a high of 26,020.40, representing 11.64 percent decline. Market capitalisation also dropped by 11.68 percent from N9.85 trillion at which it opened the year, to N8.70 trillion representing a value loss of  N1.15 trillion.

The year-to-date returns of the NSE’s basic indicator is currently 10.95 per cent negative, just as market capitalisation for the same period has lost N1.08 trillion. Within the first quarter trading period the market had 33 bull sessions and 30 bear trading sessions to record a mixed performance of one month down market and two months up market.

NSEASI Weekly Time Frame of YTD

The NSE ASI closed above the lower band by 44.7%.  During the past 10 bars, there have been 5 white candles and 5 black candles.  During the past 50 bars, there have been 20 white candles and 30 black candles for a net of 10 black candles. Currently MACD is bullish since it is trading above its signal line. It crossed above its signal line 4 period(s) ago.  Since the MACD crossed its moving average, NSEASI’s price has decreased 1.21%, and has ranged from a high of 26,250.34 to a low of 24,181.51. RSI is currently reading 42.59. Other indicators MACD and CCI are signaling buy while Stochastic Oscillator is giving sell signal. As the market continue to trade below the blue line the bear remain in charge, suggesting that traders and investors should target stocks that are out-performing the market now, due to the intrinsic value and other fundamentals in favour the stocks. The chart above also revealed that the market is trading below the short and long moving average like 20, 50 and 100 DMA.  This is also a signal of weak market with less external stimulus to trigger upmarket in the short term.

NSEASI Quarterly Time Frame

The chart above has shown that the market has been trending down since the third quarter of 2014, the pre-election year as the major fund provider of the market, the foreign and institutional investors continue to pull their funds out due to fear of the unknown, before the election. But with the elections over over, there has remained an economic policy of the President Muhammadu Buhari administration that so far remains unclear in terms  giving direction to investors, but existing and potential. This has not been helped either by an equally unstable monetary policy and the fear of not getting stuck in Nigeria, and even worsened by the current exchange rate volatility.

For those interested, below are lists of best and worst performing NSE stocks during the first quarter of 2016.

Market Outlook for Q2

Looking at the market performing towards the end of first quarter is likely that the party is over as the major factor earnings season that push the market up is coming to an end as the blue chips have released numbers and players in the market are giving different analysis to benefit from the numbers. Equity market is likely to slow down as the expected quarterly results would not have much strength to influences prices considering the economic situation. The just approved budget will not make any impact immediately until end of Q3. The recent hike in interest rate, CRR by the CBN will naturally make money market instrument slightly attractive since the risk element is zero and at the same funds that are insufficient in the equity market will flowing out.

STOCKS TO WATCH

FCMB, Fidelity Bank, Access Bank, Lafarge Africa, Dangote Sugar and Dangote Cement

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