The Nigerian stock market outlook is another first from the Investor Hangout stable. What is it? How does it work? What does it show me? These and many more will be explained in this introduction to this stock market outlook weekly, for everyday investors.
A quick search for the “stock market outlook” keyword returns 6,600 average searches per month and an estimated $3.53 cost per click (according to Keywords Everywhere). This is an indication that this is a niche topic that has great demand but few solutions.
To define what the term means, let us get to the root words of the sentence. Dictionary.com defines outlook as the prospect of the future, from a particular place. In the context of the stock market, an outlook means “the prospect of the future of the stock market, from a particular place“. The “particular place” in this sentence refers to today or now. Therefore, and in simple terms, the Nigerian stock market outlook is the prospect of the future of the Nigerian stock market, based on information that is available today.
Why is Investor Hangout producing a Nigerian stock market outlook?
As stated in our welcome post, we launched the Investor Hangout project because of the frustrations we, as well as other really smart investors, experienced while trying to replicate the efficiencies and successes we had enjoyed when working with the stock markets of developed economies.
One of the more common publications in those climes included stock market outlooks that were intelligently prepared and useful to investors that read them. Some investors, literally, could not make decisions without reading their analyst’s outlook for the day, week, sector, or market.
We compared the work that was already available in the Nigerian market and realized that there was a gap. Most of the outlook reports, commentaries, and videos that we identified a flaw. Subjectivity! Most of the stock market outlook reports were produced without foundation in data – it was only about the analyst’s perception of data that was publicly available.
How is this stock market outlook different from others out there?
When we identified this “subjectivity” flaw, we asked some questions. Is there a way to create a market outlook report that has an objective data-perspective? Is there a way to create an outlook that stays consistent and that anyone can interpret? If yes, what is required to build such a model?
Our answer to the first question was yes. There is a way to create a “data-backed” outlook. The second question, what is required, was the work that led to our version of the Nigerian stock market outlook.
To create a model that can produce the basis for a data-oriented outlook analysis, you need:
Models to analyze that data
An infrastructure to power the data and its analysis
A data visualization capability
We got all these components together and came up with the Investor Hangout’s version of the Nigerian stock market outlook. Thus, our version differs from others because forms an outlook from a data-perspective.
What makes up the Investor Hangout stock market outlook?
Our Nigerian stock market outlook culminates in an outlook that is derived from two important technical models – market trend and market breadth.
Market trend, simply, looks at all the data available and identifies the current trend (direction) of the stock market. Market breadth, on the other hand, looks at the strength of any underlying trend by determining how much of the market’s constituents are involved in any trend. The key components of Investor Hangout’s Nigerian stock market outlook are outlined in the following sections.
Stock Market Outlook Section
Investors need to constantly adjust to changing markets. To make those adjustments, they need to understand what has happened in the stock market and then make reasonable and educated projections on where the market could go.
Accuracy in making these projections can mean the difference between being an alpha-generating (market-beating) investor and an underperforming one. Reviewing the market outlook before making investment decisions will help you make sound investment decisions.
This section presents investors with hours of data gathering and research work all summed up to a few seconds of glancing. The information provided in this window shows you an accurate and current state of the market, keeping you abreast of the prevailing market outlook – ranging from bearish (falling market) to bullish (rising market). The following subsections make up the outlook section:
This is the most important area for strategic investment decisions. The outlook gives a verdict on the medium to long term outlook for the Nigerian Stock Market and is a combination of both market “Breadth” and “Trend”.
This allows you to see changes in the sentiment in the entire stock market. This reveals the moving forces behind the market trend. It answers the question: “Is the current trend supported by a majority of the listed stocks or are there just a few stocks determining the trend”? When many stocks are driving the trend, it is a good indication of a trend that is likely to be sustained and vice versa.
The market is prone to moving in one general direction or another (up or down) until something causes that direction to change. Uptrends are characterized by prices making higher highs and higher lows. Downtrends are characterized by lower highs and lower lows.
The 52-week high or low is useful in trend identification. If a stock is near its 52-week high then its trend is positive and vice versa. Momentum investors try to buy with the trend and the 52 week high is a convenient way to define its direction.
Relative Strength Section
Comparative Relative Strength can be a big help when seeking the right investments to purchase for your portfolio. It represents a measure of the performance of one security’s price performance to another.
By understanding how one security has performed compared to another, you can often make a more informed decision about which stock is the right choice for your portfolio.
Viewing the outcome of a relative strength analysis can show you which sectors are performing well and which are not good places to invest in, right now. The sectors in the lead often tell what part of the economic cycle we are in and what sectors may be strengthening and weakening in the near future.
Relative strength analysis can also determine which asset classes would be appropriate for a tactical overweight or underweight decision.
Price History Section
The price history section gives a simplistic view of the trend of the market. It displays the market’s price compared to its 200-period moving average.
Moving averages provide important information regarding the direction of the market. They were created to provide the directional information of the market to smoothen out the zig-zags that form during a trend formation. Investors use the moving averages for their investment decisions because it provides a visual indication of a trend’s direction and slope.
Market Quality Section
This window contains our Proprietary Indicator whose primary function is to tell us, in real-time, what’s happening in the market. The Market Quality Indicator suggests to us, the greatest probability of where the All Share Index’s price is going next.
Market Quality combines the market trend (direction), market breadth (proportion of participating stocks), and market momentum (rate of change of price) to produce a tracker of market quality. It displays an almost foolproof indication of the true and current state of the market.
Stocks Above Their 100-Day Moving Average Section
This section contains a breadth indicator that shows the percentage of Nigerian stocks that are currently trading above their 100–day moving averages. The term “Breadth” relates to the number of stocks participating in a move.
The indicator declines when more stocks cross below the 100–day moving average and rises when more stocks cross above their moving average. This tool provides a powerful indication of the general breadth of the market.
Stock Market Watchlist Section
A stock watchlist is an essential part of a successful investor’s trading routine. It is a list of securities being monitored for potential trading or investing opportunities.
Since a majority of successful investors believe in investing with as much information and education as possible, it becomes very difficult and quite unnecessary to keep up with the entire universe of stocks. A filtered list of premium quality stocks puts the wind in your sail.
This section provides an auto-updating list of stocks that has been filtered using conditions that produce high quality and investment-grade stocks. These filters are:
20-day average trading volume greater than or equal to 1 million shares
Market Capitalization (adjusted for free float) greater than or equal to ₦1billion
The stock price is greater than or equal to ₦ 1.00
1-year average volatility is greater than or equal to 20%
How does the Nigerian stock market outlook help me?
The market health dashboard measures the health of the Nigerian stock market, providing investors with a context to understand what is really going on.
It can also be used as a model for measuring risk, telling you how risky the market environment is, thereby providing you with the opportunity to adjust exposure accordingly.
It is not a trading system, as it does not give you buy and sell signals, but it gives you a context and a lens to view the market and then have a strategy that uses this as an import.
It is our hope that the Nigerian Stock Market Outlook will help active investors to improve their decision making in less time. Sophisticated investors understand the need to rotate from one asset class to another. Understanding where the stock market is, and where it is likely to go, will help you know when to be optimistic or when to be cautious.
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.