Welcome to the penultimate episode of Investor Hangout’s stock market outlook. In our previous edition, we identified three potential outcomes for the Nigerian All-Share Index. The last option, “we could see the all-share index trade above the ₦36,000 price zone”, was the winner.
You may be wondering what triggered the index to break out of its preceding four-week range. Well, it turns out that investors were disappointed by the CBN’s special T-bills rate. This ultimately provided investors with the conviction they needed to return to the equity market. This article by Market Digest is a good read if you would like to learn more about the CBN decision.
Stocks to watch
This week, our watchlist saw more changes than the previous week. WEMABANK and AIICO moved into the top 10, while DANGCEM AND MANSARD dropped out of the top 10. The 10 stocks in our watchlist for the week ahead, therefore, are:
Please click this link to download a copy of this week’s stock market outlook where you can see the full list of companies in our watchlist.
Stock Market Outlook for the week of December 21, 2020
The stock market has been on a strong run for the last 9 months, starting from the April 2020 bottom. It had been range-bound for the last four weeks and finally decided to continue upward in the week that just ended.
Given the current trend (uptrend) and last week’s breakout, it makes sense to think that the market should test higher levels this week. So, where could the index go this week? There were three immediate levels to target before last week. They were:
- ₦36,674
- ₦38,086, and
- ₦39,443
The index already closed above ₦36,674 on Friday, leaving ₦38,086 (3.5% from Friday’s close) and ₦39,443 (7.2% from Friday’s close) as the immediate targets.
In the event that unpleasant news breaks into the stock market, we need to keep an eye on the support level created during the past month at ₦33,621 (a 9.5% decline – tough to pull off I guess).
One last thing to note is that the ratio of shares trading above their 100-day averages (an indicator of market breadth) has topped out as shown in the image below.
Remember that we noticed a pattern of declining market breadth after touching 2.9. Savvy investors need to keep an eye on this to know whether the current uptrend is suspect or trustworthy.
The market opens in about an hour so I need to get off and post this article early enough for your consumption. Till next week, invest responsibly, and merry Christmas!
