Nigerian Stock Market Outlook – November 15, 2020

Stock Market Trend

Wow, what a week! That is the best way to summarize what happened on the Nigerian stock exchange in the week that just ended. Friday turned out to be a historic day on the Nigerian stock market; it was the first time that the circuit breakers were triggered to temporarily halt trading. This happens to prevent extreme price volatility and is triggered when the all-share index rises or drops by 5%, between 10:15, am, and 13:45 pm on any trading day.

Many observers, erroneously believe this week’s gain was the highest weekly gain in the exchange’s history. This is not quite true. The market, this week, registered a net gain of 12.97%, making it only the fifth time it would register a double-digit gain since the exchange launched the automated trading system on April 27, 1999. It has also recorded double-digit losses, and with more frequency than it has recorded double-digit gains.

The table below shows the different times that the Nigerian stock exchange returned double-digit gains and losses within a week. As you will see, this week’s was just the third-highest in about 21 years.

Double-digit NSE gains

The question many are asking is “will this trend continue into the following weeks and months or should speculators take some profits and look for better entries? A quick glance shows that the past resistance was blown through easily and the temptation is to believe that this rally will continue.

Market Breadth

The ratio of stocks above their 100-day moving averages is an indication of how strong a market trend is and how likely it is to continue. The ratio is graded into three levels, 1, 2 & 3 each indicating a level of how many stocks are above their 100-day moving averages.

The ratio increased from 2.0 in the previous week to about 2.5 during this week just ended. This means that more than 80% of all listed stocks on the market are above their 100-day average prices. This is quite historic as well; around 8 out of every 10 stocks are bullish!

Sector by Relative Strength

With the entire market being so strong, it is no surprise that only the industrial index has outperformed the all-share index to-date (about 7%). The industrial sector truly has some great stocks but investors can find others in sectors that are underperforming the all-share index as well.

Stocks to watch

The stocks listed in the table above are the stocks that fulfill the requirements as set out in the introductory post stock market outlook for Nigerian stocks. These stocks show the right amount of volatility, liquidity and fundamental soundness that we believe (recommend) should make them star performers over the medium to long term, barring any sudden setbacks.

Outlook for the week of November 15, 2020

These are not conventional times in the Nigerian stock exchange and to make sense of what is going on, we thought to go back in history and see how the market performed after posting historic gains like it did this last week.

We collected data about the stock exchange and filtered the same data for periods where the weekly change was a double-digit figure like we saw this week.

The results are presented in the table below.

1 month NSE Return after double digit weekly gain

We can see from the table above that, out of the four previous times that the all-share index previously returned double-digit gains, the exchange return in the four weeks after the historic gain was negative on three occasions. The only time that return was positive was the week of January 12, 2018, when the return was +0.78% (not very much).

From a tactical point of view, speculators could interpret this data to mean that the market does not normally go on to return positive gains in the one-month after a double-digit return.

As said earlier, these are not normal times. Who knows, the current bullish trend, supported by almost all-time high market breadths, may just mean that this is the first time that we witness a significantly positive return in the one month following a double-digit gain on the Nigerian stock exchange.

If you would like to download a pdf copy of the stock market outlook dashboard, please click on this link.

Till next week, invest responsibly.