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Friday, March 31, 2023

Dangote Cement Correction Looms on Head-and-Shoulders Pattern: Technical Analysis

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Nigeria’s largest listed Firm Dangote Cement may fall as much as 40 percent from current levels in the coming months as a head-and-shoulders pattern develops, according to technical analysis by MoneyCentral.

A five-year chart of Dangote Cement has formed what technical analysts call a “head and shoulders” pattern, which foreshadows a bullish-to-bearish trend reversal.

The mega cap stock with a N3.57 trillion market capitalization has surged by 65 percent in the past year, as its diversified African operations and surprising resilience in the home country Nigeria largely shielded it from the coronavirus induced slowdown across most of Africa.

A head-and-shoulders pattern is formed by three consecutive peaks on a chart, with the middle being the highest. Dangote Cements 5-Year chart shows the first peak at about N200 per share in mid-2016, followed by the major peak (Head) at N278 reached in early 2018 and finally the next peak of N209 per share hit last week (See Chart).

Dangote Cement

A breach of a neckline connecting the base of the three peaks, also a regarded by Technical analysts as a support level, may signal the reversal of a trend. A retreat to the trendline around N120 per share would be equivalent to a 40 percent slide.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

MoneyCentral in a recent article suggested that the rally in equities is a bit frothy as technicals point to a correction.

Nigerian Stocks have returned +37.12 percent year to date (YTD).

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