Nigerian Stock Market Outlook – January 11, 2021

40,000 points achieved, what next?

In earlier posts, we expressed our opinions on where we thought the Nigerian stock exchange all-share index could be heading. We identified a pattern where the all-share index commenced new 20-week rallies after a market breadth limit was reached. We also identified a pattern of 24-month cycles from top to bottom and back again. In that post, we made a good case for why the all-share index could be headed somewhere around 45,000 points.

The Nigerian Stock Market hit 40,000.

In our last edition, the index was valued at around 38,000 points. In the following days, it went on to breach 40,000 points (a 30-month high).

As seen from the image above, the general trend of the market is still up. The 9-month trend that began in April 2020 is still valid. You can, though, expect some retracements of this trend over the course of time. The market breadth, an indicator of the strength of the market, is still positive. This indicates that more companies are trading above their medium-term moving averages than those that are not.

What next for the index?

January has opened up with some bearish indications. Several indices have shown price-actions that indicate that we may be in for some sort of reversal in the coming days. If this continues, we can expect the all-share index to retrace some of the moves it made coming up (a whopping 98% rise from April’s bottom). If this is the case, we have identified what we believe will be the first support level somewhere around 36,000 points (a 10% decline from Friday’s close).

Considering the fact that the market is expecting a flurry of end-of-year reports in the coming weeks, it could be a strategic move for money managers to position for such reports. If investors do not sell-off some shares with the expectation of better yields (buying back when the price is lower plus great earnings), we can expect a quiet sideways market in the coming days.

If, however, as has been happening in the last few weeks, some positive news filters into the market, then we may see a continuation of the run-up to 45,000 points.

Till next week, stay tuned and invest responsibly!