The Nigerian Stock Market : 2019 Technical Analysis Outlook

The month of December 2018 continued its Santa Claus rally as the Nigerian Stock Exchange (NSE) All Share Index (ASI) ended on a positive note close the month at 1.80%. This is the 10th consecutive month we are experienced a bullish close in the last trading month on the floor of the Nigerian Stock Exchange since 2009.

Nigerian Stock market as measured by the All Share Index lost 6,992.62 points in the 2018 representing a 17.81% year to date depreciation to close the year at 31,430.50 while market capitalization declined by 13.88% valued at N11.720 trillion as at December 31st, 2018 compared to the closing Market capitalization value of N13.609 trillion in December 31st, 2017.

All major sectorial indices ended the year 2018 on a negative note.

The table above showed that all listed sectors on the Nigerian Stock Exchange ended bearish.

Market breath analyses review positive sentiment as 25 equities advanced with 69 stocks declined as compared to last year’s 56 advance and 23 declines. The breath indicator shows relatively negative behaviors 0.36x.

The depreciation in the broad index is largely driven by decline in the industrial goods, Consumer Goods and the Banking Sector

On the individual equities, the table below shows the top 5 gainers and losers including the least 5 gainers and losers

Trend Analysis

Having ranked the Nigerian stock market is ranked among the best performing stock exchanges in the world for the year 2017 with a whopping appreciation of 42.30% with market capitalization growth of 47.17% in 2017, the Nigerian Capital market witnessed a different tails in 2018 as we saw a reversed in sentiment by the investing community going more bearish in the course of the trading year 2018.

Month on month trend analysis of the All Share Index (ASI) showed that out of the 12 trading months, the investors were bullish in 3 months (January, June and December 2018) while bearish for 9 months (February, March, April, May, July, August, September, October and November 2018). The highest bullish month was in January 2018 while the largest bearish month was May 2018.

Volume analysis month on month shows a continuous decline in volume traded after reaching the highest in January 2018 with over 21.698billion traded while the least traded month was in September 2018 with 3.954 billion units of shares traded in the month.

On quarterly basis witnessed 1 bullish quarter (Q1) while the Nigerian Stock Market continue to witness decline in subsequent quarters (Q2 – Q4).

Technical analysis:

Having failed to sustain the brief breach above significant resistance level of 43,087.40 in July 2014 (50% Fibonacci retracement level of the long term downtrend) in January 2018 when the index reached the year high of 45,321.82 the index resumed a steep downtrend as investing community became pessimistic

In the longer view, major resistance and support level stands at 43,224 and 19,246.34 respectively.

The index is currently trading below the Simple Moving Average (SMA) 20 days at 36,425.50 but currently at the Simple Moving Average 100 days at 30,876.79

Using Fibonacci analysis of the downtrend of 66,371.20 high and low of 19,803 the index is still trading within the retracement zone currently at the 23.6% level at 30,793.55 and would technically be termed as a resumption of the larger downtrend but needed a confirmation break below this level to see a steep downtrend towards key support level of 19,803

Looking at the 6 month chart below, the last 6 months bearish candle serves as confirmation of the Doji (indecision between the Buyers and Sellers) in the first half year 2018

On the daily charts below, the market participants are facilitating transactions in a balancing area of resistance of 31,933.14 and intermediate support of 30,568.91 on relatively high volume

Fundamentals review:
The Nigerian Economy in 2018 showed a positive GDP real growth rate quarter on quarter as released by Bureau of Statistics Q1 – 1.95%, Q2 – 1.50% and Q3 – 1.81%. The foreign reserves as at 28th December, 2018 stood at $43,226,955,735 which was 11.50% positive growth from the figure as at 29th December, 2017 of $38,765,961,445. Inflation stood at 11.28, Monetary Policy Rate (MPR) – 14%. The price of crude oil was traded about $53

The uncertainty that characterized an election year resulted to outflow of funds from foreign investors bringing the NSE ASI sharply downward in 2018.

Outlook for 2018

The Nigerian market would be considered a bearish trend in the long term while on the Medium term neutral and short term remains bearish.

The Banking, consumer goods and industrial sectors are most likely to continue in the bearish trend in 2019. With the December 2018 candle formation finding resistance at the key support level, we expect a short term decline early in the year (Q1) while a possible re-accumulation after the election could drive the Nigerian Capital market towards the positive direction at the end of 2019.

Key levels to watch are resistance and support level stands at 43,224 and 19,246.34 respectively

 

 

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