The Nigerian stock exchange has been on a persistent 30-week recovery. Since the March decline (at the height of the Covid-19 crisis) where it lost +30% over a 12 week period, the index has posted an impressive recovery, clawing back the entire loss and, just last week, exceeding the highest price registered in the last 52-weeks.
The All Share Index broke out of the 52-week high, ₦29,909.06 on Friday, 30th of October, 2020. On the same day, the price action broke out of the top of the 6-month old channel top, pointing to very bullish sentiments in the market.
This past week continued to inch higher and the next resistance is at the ₦32,700 – ₦33,000 price zone.
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 current ratio is at 2, an indication that more than two-thirds of all listed stocks on the market are above their 100-day average price. This is another indicator of strength in the ongoing uptrend.
Of the six major indices, representing the major sectors on the Nigerian Stock Exchange, only the industrials and insurance indices have outperformed the All-Share Index to-date (both by close to 8%). Conventional investing would say that if you want to buy, you should buy into strength. This would infer that you should be looking for stocks in these sectors first.
If you are a contrarian investor, though, and like to pick bottoms, you could look to identify great stocks in the underperforming sectors and hope that as the general market strength prevails, your “jewel in the sand” should reward your risk commensurately. Are you thinking “some jewels in the banking sector”?
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 8, 2020
With the markets making new highs and supported by great market breadth (more than two-thirds of the market trading above their 100 day moving averages), the Nigerian stock market has recovered the losses it made earlier during the year and is now trading at new 52 week highs.
Medium and long-term investors who missed out on lower priced entries could identify stocks with great IH Scores (fundamentally sound stocks), and in sectors that are leading the All-share index. The insurance sector, though, should be watched with caution – recent price action shows signs of pull-back already.
Short-term traders who have just discovered the “break-out” opportunities with Nigerian stocks should also be watchful of the resistance that is ahead on the All-share index – ₦32,700 to ₦33,000 price zone. The ideal scenario for such traders would be to hope for a pullback and identify leading stocks that are poised to rally.
Taiwo Megbope is the Co-founder and Chief Growth Officer at Investor Hangout.
He is tasked with ensuring and managing the growth of the Investor Hangout project. His responsibilities include creating and implementing the project's vision as well as executing growth-generating strategies.
Taiwo is an avid researcher and autodidact. In his spare time, he enjoys spending time with his family and friends.