TheMarket.co.za



Welcome to TheMarket.co.za Weekly Analysis Report

Date of Issue: 05 April 2017

By Colin Abrams

|Classic Trading Rule: |

| |

|”Take your profits or someone else will take them for you.” |

RESI STOCKS TAKING-OFF AGAIN

Introduction:

With the current crisis in the county, the batten on the JSE has been passed from interest-rate sensitive stocks (mostly banks and retailers) that were doing very well until this crisis broke, to resources stocks, which had been undergoing a steep correction in recent months. We’re now seeing resi stocks truly blasting off again, and this strength there is likely to continue. Some of these resi stocks are a bit extended in the immediate short-term, but one should be looking to buy them, ideally on a minor pullback if not in. Some rand hedge industrials are also doing well (but surprisingly, not all of them). A lot depends on what the rand does in the short-term, making the market very volatile right now.

Starting with the S&P 500, it’s still in a consolidation phase in the short-term, but this is ultimately a pause before it heads higher again. The JSE All Share index has picked up quite nicely, helped by the weakening rand. Resistance levels are shown on its chart. We also look at the JSE gold index, which has had a great run in recent days, and its nearing an important resistance level that it needs to break. Then we look at the USD/JPY, which besides being tradable itself, is also giving an indication of what gold will do. The stock charts shown are Glencore (threatening a new breakout), Kumba-IO (consolidating before a breakout), and AVI (bounce-back potential).

The small-cap stock is ISA, which is slowly but surely making its way to a higher target.

Overall, we are living in unusual times, but on the JSE right now the ‘line of least resistance’ is with resources stocks, that look to be starting their next major leg to the upside. This rally should go one for a while still. In terms of findi stocks, it depends entirely on what the rand does in the short-term. The rand itself is holding up relatively well, but it certainly remains vulnerable to further weakness, particularly if we get another sovereign downgrade which could be as soon as the coming days.

|Executive Summary: |

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|S&P 500 (chart 1): Hold current long position. Add to only if breaks out above line 4 |

|All Share Inx: (chart 2): Go long again off line 1, or above yesterday's high – first to happen |

|JSE Gold Inx: (chart 3): Buy gold shares on a minor pullback to 1435; or on a breakout above line 2 |

|USD/JPY (chart 4): Sell short USD/JPY on a break below line 3, or reversal down off line 1 – first to. |

|Glencore (chart 5): Buy on a close above line 2 (R55.53), potentially occurring today |

|Kumba-IO (chart 6): Buy a close above line 3 (i.e. above R223.04). |

|AVI (chart 7): Buy on a close above its prior one-day high |

|ISA (chart 8): Buy at current levels or better |

|Leading Stocks (3-mths): Top 40 – MondiPlc, Shoprit, Richemont, Bats, Reinet, Discovery, Naspers-N. |

|Resources 10 – Mondi, Glencore, Gfields, Anglo, Sappi. |

|Shortable stocks/instruments: 16 |

1. MARKET CHARTS

S&P 500 INDEX – Underlying bullishness

Recommendation: HOLD (WITH CAUTION)

Current Trend: Short-term sideways to down. Med and long-term up.

Strategy: Hold current long position. Add to only if breaks out above line 4.

Chart 1. (Daily)

[pic]

Chart Setup: The S&P 500 has basically moved sideways over the past week. I'm not convinced that it’s ready to rally again just yet, which is why last week I said to buy, but with caution. Nevertheless, there is good support below the market at its rising 50-day moving ave, line 1, and line 2 (at 2341). Right now the price is also resting on line 3 support (2352).

• One potential negative is that its short-term Stochastic (on top) is overbought again.

Strategy Details: Hold the current long position, but still with caution. If however it closes above line 4 then buy if not in, or add to current holdings. (Line 4 is at 2375 on Weds 5th and it’s declining at an angle of 1.00 point per day hereafter e.g. to 2374 etc.).

Target: Technically, a short-term H/Sh is still pointing to a target down to 2310, but this is in danger of being negated. (A close above 2370 will negate that downside target). To the upside, a close above line 4 (see level above) will set up a target to 2420/2422. My med-term target is still 2450.

Stop-loss: Current stop is a close below 2340 (below lines 1 and 2). Once it gets to 2400 bring the stop up to breakeven. And from 2418, raise the stop to a breaking of its prior two-day low.

JSE ALL SHARE INDEX – Resistance levels higher up [Signals done on alsi future]

Recommendation: LOOK TO TAKE REMAINING LONG PROFITS

Current Trend: Short-term up. Med and long-term sideways.

Strategy: Go long again off line 1, or above yesterday's high – first to happen.

Chart 2. (Daily)

[pic]

Chart Setup: The index reached our first profit target at line 2 for taking half profits. It gave a reversal candle there yesterday (Tues.). It’s up today so far but off its highs. The index is very sideways bound, but if it happens to drop back to support (line 1) it will be worth buying again; or buy if Tuesday’s bearish candle gets ‘taken out’. The price has formed a ‘potential’ inverse H/Sh continuation pattern (s-h-s in grey). It is not classically formed, but if it closes above Tuesday's high (53 050) that will be very bullish.

• Its short-term Stochastic (on top) can still rise further before becoming overbought. And likewise for its weekly Stochastic (not shown).

Strategy Details: Look to take remaining profits on this long trade if it gives a reversal day/candle down today (Weds) or on a breaking of its prior one-day low. If it drops to/near line 1, go long again on a reversal day up from there. (Line 1 is at 51 630 on Weds 5th and it’s rising at an angle of 50 pts per day thereafter). Alternatively, if it closes above Tuesday’s high of 53 050 then go long as well. Do whichever happens first.

Target: Pullback potential to line 1 (see level above). But if yesterday's high gets taken out then look for a rally to line 3 (53 970) to take half profits, and the rest closer to line 4 at 54 750.

Stop-loss: Stop for buying off line 1 is a close below 51 600. Or if buying a close above 53 050, stop will be a close below 52 450. From 53 550 raise stop to a breaking of its prior two-day low; the prior one-day low from line 3 (53 970).

JSE GOLD INDEX – Important upside breakout potential

Recommendation: BUY GOLD SHARES ON A MINOR PULLBACK, OR BREAKOUT

Current Trend: Short-term up. Med-term sideways. Long-term technically down.

Strategy: Buy gold shares on a minor pullback in this index to 1435; or on a breakout above line 2.

Chart 3. (Daily)

[pic]

Chart Setup: Following on from a bullish reversal month for March, we’re seeing some good upside follow through here so far. Despite closing off its high on Tuesday it is following through today. Crucial resistance is at line 2 (1620). If the price can breakout and close above line 2 (1620), it will confirm a double bottom pattern, thereby pointing to significantly more upside.

• Right now its short-term Stochastic (on top) is overbought, with a negative divergence (see Glossary), so the odds of a pullback soon are fairly high. Its weekly Stochastic though (not shown) is still rising from its oversold region and this means there is likely going to be more upside if we get a minor pullback first.

Chart Setup: Buy gold shares on a minor pullback e.g. to 1435. (Enter on the first bullish reversal day/candle thereafter). If the index continues higher to close above line 2 (1620), it will be for buying gold shares aggressively.

Target: Pullback potential to 1435-1425 in the short-term. If it pulls back below there, then look of support at 1315 (to buy off on a reversal up). Then look for a rally to line 2 (1620 region). If it closes above 1620 (line 2) that will set up a med-term target to 2230 at least i.e. the height of the double bottom projected up.

Stop-loss: For buying on a pullback, place the stop as a close below 1295, or if preferred, place it as a close below line 1 (important support), at 1167. Once the price gets closer to line 2 e.g. from 1570 raise the stop a lot, to a breaking of its prior one-day low. If it breaks out above line 2 (for buying again), the stop for new longs will be a close below 1390.

USD/JPY – Lower target

Recommendation: LOOK TO SELL SHORT

Current Trend: Short- and med-term down. Long-term sideways.

Strategy: Sell short the USD/JPY on a break below line 3, or reversal down off line 1 – first to happen.

Chart 4. (Daily)

[pic]

Chart Setup: The dollar/yen is significant for a number of reasons, but one of them is that the yen (JPY) is closely related to the gold price. (Note, the yen itself is the inverse of the above chart. The above chart is the USD against the yen). So when the above chart moves down, the dollar weakens, that is bullish for the gold price (yen strength).

• Right now, the USD/JPY is finding support at line 3 (110.090) after having broken down from a channel formed by lines 1 and 2. There is a lower target from that channel, which implies the yen to strengthen, as well as the gold price.

• Its short-term Stochastic is turning down again after a reasonable move up, implying a move down in the currency. Note, its weekly chart (not shown) is oversold, which is the only potential bullish sign for the USD/JPY.

Strategy Details: Sell short the USD/JPY on an intraday break below line 3 (110.090). Or, if it bounces back to line 1 (112.00) sell short a reversal day/candle from there. Do whichever happens first.

Target: Down to 108.35 i.e. the height of channel 1-2 projected down. That will also be at its flat 200-day moving ave (support).

Stop-loss: For shorting the breakdown of line 3, stop is a close above 112.00. If shorting a reversal down off line 1, stop will be a close above 112.20, or above the high of a reversal day down from there (whichever is higher). From 108.75 lower stop to a breaking of its prior one-day high.

GLENCORE (GLN) – A new breakout threatening

Recommendation: LOOK TO BUY

Current Trend: Short and med-term sideways. Long-term up.

Strategy: Buy on a close above line 2 (R55.53), potentially occurring today.

Chart 5. (Daily)

[pic]

Chart Setup: Glencore is testing important resistance (line 2) today. Lines 1 and 2 form a broadening formation, and an upside breakout will set up a nice short-term trade.

• Its MACD (on top) is giving positive divergence (see Glossary) from its oversold region, warning of a good rally to come.

Strategy Details: Buy only if it closes above line 2 (R55.53). This could occur today.

Target: Once the breakout is confirmed, it will set up a target to R62.40 i.e. the height of the broadening formation projected up. There will be some prior resistance at line 3 (R61/R61.20 level) where it might stall for a while. One can take partial profits there (line 3).

Stop-loss: Initial stop will be a close below R50.85 which is below a price gap that formed a few days ago (drawn in). From R60.80 raise the stop to a breaking of its prior two-day low, then prior one-day low from R61.50.

KUMBA-IO (KIO) – Pausing before a rally

Recommendation: BUY A BREAKOUT

Current Trend: Short-term sideways. Med and long-term up.

Strategy: Buy a close above line 3 (i.e. above R223.04).

Chart 6. (Daily)

[pic]

Chart Setup: Kumba is currently in a short-term consolidation phase, but the larger trend is clearly up. It’s forming a short-term ‘cup and handle’ pattern (drawn in), and this is likely a pause before it heads sharply higher. Line 1 is good support, going back to mid-2016, currently at R187.

• Its daily MACD (on top) is now looking to move more fluidly above its zero line, and has good upside potential before becoming overbought. (Note, shorter-term oscillators are relatively overbought, but if we get the breakout the price will rally sharply).

Strategy Details: Buy it on a close above line 3. While line 3 itself is at R222.80, wait for a close above R223.04 (its 17 March high) to buy.

Target: Once that signal occurs, it will set up a target to R286.50, based on the cup and handle pattern. Note, there will be some prior resistance at line 2 (R250 level) where it will probably stall for a while. Lock in a bit of profit there.

Stop-loss: A close below R200 (once the buy triggers). Once it gets to R250, bring your stop up to a close below R222. Lock in a bit more profit at R261. From R272 raise the stop to a breaking of its prior one-day low.

AVI (AVI) – Near support levels

Recommendation: LOOK TO BUY

Current Trend: Short-term down. Med and long-tem up.

Strategy: Buy on a close above its prior one-day high.

Chart 7. (Daily)

[pic]

Chart Setup: AVI has been a very good performer in recent months, but is currently correcting with other local industrial stocks. It has now reached a support zone at line/s 2 (R97.65-R96.90). Further support is just below there at its 50-day moving ave and then line 1 (R95.30). If there is some sort of ‘resolution’ to the current political crisis, or if the rand strengthens again, then AVI should have a good rally.

• Its short-term Stochastic (on top) is oversold (bullish).

Strategy Details: Buy it only if it closes above its prior one-day high. (Tuesday’s high for example was R98.93). But if the signal occurs from below line 1 e.g. from below R95.00, then don't buy.

Target: Take partial trading profits at R101.20 and the rest at R103.40.

Stop-loss: The stop is a close below R95.00 (i.e. below line 1). Obviously, the closer to line 1 the signal occurs, the better, from a risk/reward perspective (see Glossary). From R100.50 raise the stop to a breaking of its prior two-day low, then prior one-day low from R101.50.

2. SMALL-CAP. CHART

ISA (ISA) – Higher target still

Broad Recommendation: HOLD/BUY IF NOT IN

Current Trend: Short and med-term sideways. Long-term up.

Strategy: Buy at current levels or better.

Chart 8. (Weekly)

[pic]

Sector: AltX Price: R1.41

Chart Setup: ISA was recommended here a year ago when it broke out above lines 1 and 2. It subsequently reached its first target from pattern 2-3. It been consolidating since then and building up for its next leg higher, to its main upside target based on a massive inverse H/Sh.

• Its weekly Stochastic is neutral.

Strategy Details: Hold from the prior recommendation if you bought it. If not in, it can be bought at current levels (or better).

Target: Main upside target (which was once a long-term target, but now more med-term) is R1.85. That’s about 35% higher than current levels. It’s based on the height of the large inverse H/Sh projected up. Support is a zone at line/s 4 (R1.25-R1.20).

Stop-loss: A weekly close below line 4 i.e. below R1.20. Or, as a more long-term position, the stop can be placed as a weekly close below line 1 (92c) for now; until it gets closer to its R1.85 target (then move it to below line 4).

Other small-caps of interest (alphabetically): (shares to consider on a pullback)

• AECI, Howden, Huge, Phumelela, Sentula, Stor-age, Zeder.

3. RELATIVE STRENGTH

➢ These are the strongest index stocks on a 3-month basis relative to the JSE All Share Index.

➢ Typically the leading stocks keep leading. Therefore, traders can buy these stocks on pullbacks, although always look at the chart first before making a decision. Medium and longer-term players should look to buy them when they first appear on this list.

➢ We've also included the weakest index stocks. These can either be shorted on bounces (if in a downtrend), or traded as a "pairs trade" against the strongest stocks i.e. go long a strong stock, and sell short a weak stock at the same time.

Strongest seven Top 40 stocks: MondiPlc, Shoprit, Richemont, Bats, Reinet, Discovery, Naspers-N.

Weakest seven Top 40 stocks: Netcare, LifeHC, B-Africa, Firstrnd, RMBH, Medclin, Bidvest.

Strongest five Resi 10 stocks: Mondi, Glencore, Gfields, Anglo, Sappi.

Resi 10 vs. Findi 30 over 3-months: Findi 30 is stronger.

4. NOTES & UPDATES: - Concerning last newsletter’s index stock charts:

- Tigbrands: the price continued down following the current political crisis, which is affecting local companies mostly. It dropped below important support (line 1 in last weeks newsletter) without giving a bullish reversal day up first (which is the benefit of waiting for a reversal day/candle), and so no buying will have been done. It does have support at 383, but it would need to give at least a reversal week up before considering buying it now.

- Shoprit: it gave a bullish reversal day up on Monday and Tuesday from the support level shown (line 3), and this was the signal to buy. It’s a hold for now, and can still be bought if not in. However, given the current crisis a healthy sense of caution is required. Place your stop as a close below 187.50. Note, there is further support at 183.40 if you want to place it below there, but that is quite far away. Take partial profits are 204.50 and the rest at 206 if reached. From 203 raise the stop to a breaking of its prior one day low.

- PSG: it continued pulling back together with other financial stocks and broke through the support levels shown with no reversal day/candle up occurring, so no signal was generated to buy. It can still drop further, and there is support at 234 and more solid support at 224.50. I do think this correction is going to lead to a good rally here so continue to monitor this stock to buy. Buy it on either the next reversal week up to occur, or buy a reversal day up if that occurs from 232 or lower. We’ll update with stops if/when such occurs. But ultimately I'm looking for a good rally back to retest the 270 level, but it will probably need to settle down first before that happens.

Other recommendations and index stocks of interest (alphabetical order):

Important Notice: When buying after a pullback or selling short after a bounce, always look for a sign of a reversal e.g. reversal day or reversal candle before entering (otherwise one is simply picking a top/bottom, which does not work). A reversal day/candle at the top is typically when the price rallies that day but then sells off to close near the bottom of the day’s range. Conversely, a reversal day/candle at the bottom is when the price initially drops that day, but then rallies back to close near the top of the day’s range. Waiting for the reversal day will put the odds back in your favour. (I usually like to see the high/low of the reversal day taken out the next day before finally entering i.e. the entry ‘trigger’).

- Regarding taking profits, I suggest locking in profits in thirds as the price moves in your favour i.e. 1/3 of your position, then another third then the final third.

High probability trades (or charts), other than Charts 5, 6, and 7, that I particularly like (long or short) at the moment (in no particular order. See comments below):

- Anglo, MondiPlc, RMIH, Shoprit, Richemont.

- AVI: see Chart 7.

- Anggold: it reached its two upside targets but its prior two day low trailing was triggered before this move which is always frustrating, but part of the game. That still locked in a small profit. Right now it has resistance at 164-166 so might pull back from there. Look to buy it on a pullback e.g. from below 150 (on a reversal day up). Look for a move to 177 to take profits, with potential to important resistance at 184-187. Stop will be a close below 144.40 when buying on a pullback.

- Angloplat: it had a nice run and reached all three of our upside profit targets. It is up today so far again and has resistance at 340. No new trade apparent right now but if it closes above 340 then it’s likely to continue up to 369/370.

- Anglo: has continued up nicely reaching our short-term profit target. Its prior one day low trailing stop is still in tact if you want to keep some on but it is testing some resistance right now at the 217 level. A good close today will point to more upside to 230.50 but with a minor pullback likely in the interim. A pullback to 203 level will be buyable on a reversal day up. Stop a close below 197.50.

- Aspen: reached its short-term upside target given last week. Its very range bound between 284 and 264. Either leave it alone for now or trade off these boundaries i.e. long off support/short off resistance, with the stop a close outside the relevant boundary. It needs to close above 285 to give an upside buy signal. That will point to 304.

- Barworld: buy a close above 120 (with caution). Upside target 134. Stop a close below 114.30.

- BATS: it reached and comfortably exceeded its given upside profit target. The rand needs to keep weakening for this stock to continue higher. It has resistance at 940. Then 975. I would only buy now if it pulls back to 860 and gives a reversal day up from there. Target to 940 the. Stop below the reversal days low or a close below 860 (whichever is lower).

- BHPBilliton: it gave a reversal day down on Monday from our shorting level but did not break the low of the reversal day, which I always like to see, to trigger the entry. Yesterday it gave another reversal candle down, without breaking its low. Today its rallying sharply which is a very bullish sign (two bearish candles were ignored). I don't see a clear trade here right now but it has resistance a bit higher at 226-228. If it pulls back for a few days e.g. 2-3 day followed by a reversal day up then buy it, for a move to 226-226 for part profits, and potentially to 243 thereafter. Stop below the low of the reversal day up after a pullback.

- Bidvest: its stop was triggered on this short-term trade. It has support at 150.30 but is vulnerable still in the short-term. No new trade yet.

- Brait: a close above 81.50 will be the first new buy signal here. Target then 87-89 initially. Stop a close below 78.50.

- Capitec: it gave a reversal day up from our pullback level given last week. Hold, but with caution. Target to 875 eventually. Short-term stop is a close below 750. Med-term stop below 719.

- Discovery: it’s still a hold, and has pulled back with local findi stocks, but overall I still like the look of it. Target still up to R157. Its prior all-time high is at the R154/R155 level, so take most profits at R154. Adjust stop slightly given the current volatility, to a close below R124.00. Once the price trades up to R145, move the stop up to a close below R130. From R150 tighten the stop again to a breaking of its prior three-day low.

- EOH: as mentioned last week it’s struggling to get going. We said aggressively traders only, could buy off 139. It dropped there and is slightly below the right now. Personally I would exit if you bought for a very small loss. It needs to give at least a reversal week up now to consider buying.

- Exxaro: reached its short-term upside targets. Today it is continuing even higher. As mentioned last week it has good med-term potential, and I have a med-term target to 155. Minor pullbacks are still buyable therefore. Stop a close below 114.

- Firstrnd: no reversal up occurred as it continued dropping. It is testing some support at 43.15-42, but no buying advised just yet. We need things to settle down, and more sovereign downgrades are likely to come so bank stocks are still venerable.

- Glencore: see Chart 5.

- Grindrod: no change. Take short-term profits from 14.80-15. It’s still moving sideways and it’s still a hold. Short-term stop for traders is a close below R13.75.

- Hyprop: its stop was triggered on the current crisis which has affected property stocks as well, being interest-rate sensitive. It has support at 119.40 but no new trade just yet.

- Implats: continued on to reached its upside profit target. It has resistance at 51. But no new trade just yet. If it gives a pullback we’ll consider buying.

- InvPlc: it had a massive sell-off on Friday with no reversal day up off support occurring, and it fell right through support, so no buying will have been done. No new trade right now.

- Kumba-IO: see Chart 6.

- Medclin: no new trade yet. It has resistance at 125.50 that it will need to give a close clear breakout of there before one should consider buying.

- MondiPlc: it’s continued higher rand it has a target to 355 as mentioned last week. Pullbacks ae buyable if you can get a minor e.g. 2-3 day pullback. Support is 319/317. Place stop as a close below there.

- Mr-Price: if you bought a reversal candle up based on last Wednesday’s price action it will have been stopped out as retailers continued to get hammered. It has some support at 148 that it’s testing, but only go long if it gives a reversal week up. Unless the rand settles down soon it can still fall to the 131 level so no new trade right now. Shorting it is also risky.

- MTN-Group: its still very sideways range bound right now and no clear trade is apparent in either direction.

- Naspers-N: it’s continuing higher, with only a one day pullback recently. Look to buy o a minor pullback e.g. 1-3 days. Target potential up to 2550. It is overbought in the short-term I would prefer to see a pullback to below 2300 to buy again.

- Newgold: it had a vey good close last week which is what I wanted to see as per last weeks comments. It’s following through and this is good news for gold shares. Expect some resistance at 169.40, but a pullback is buyable here e.g. a pullback to 159.50 followed by a reversal day up. Stop will be a close below 156.50.

- Old Mutual: has been hit by the current crisis on financial stocks on it broke support to trigger its short-term stop. It s pointing to a downside target to 31.98 right now. If it gives a minor bounce e.g. to 34.25 then short it on a reversal day down, Stop a close above 34.55.

- Pick ‘n Pay: short-term stop triggered if you bought this sell-off. Hold off from buying for now, until it gives a reversal week up.

- PNR-Foods: it gave a bullish reversal day yesterday which was a new buying signal. It can be bought, but with caution. Stop a close below 173.40. Target 188 short-term for trading profits. Med-tem potential still to 205.

- PSG: see update above.

- Reinet: had a good rally on the rand having sold off sharply again. It has resistance at 30.75 and more at 32.00. If it gives a pullback to 29 then buy (with caution) on a reversal day up, for those targets. Stop a close below the low of the reversal day up. Note, BATS is a relatively stronger stock though (and therefore preferable for buying).

- Remgro: reached its downside shorting target. No new trade right now but it is oversold, but still looking vulnerable.

- Richemont: I have targets up to 117-120. Pullbacks are buyable, but with caution (it’s so rand-dependent). A pullback to 105.65 is buyable if it gives a reversal day up from there. Otherwise look to buy from 103.50. Stop a close below 102.00.

- RMIH: it’s pulled back, stop hasn’t triggered but its close very close. Yesterday it gave a large bullish reversal day. Hold, but with caution. Aggressive traders only can buy, but with great caution. For new buys, stop is a close below 39.00. For current longs stop is adjusted slightly given current volatility to a close below 40.65. Take profits at 43, 43.50. Potential to 44.

- Sanlam: the stop was triggered as it got hit hard with term financial stocks. There is good support down at 62. If it happens to drop the then buy a reversal day up. Stop a close below 62 or below the reversal days low (whichever is lower). Target potential then to 69. But for now its best left alone.

- Sappi: it continued higher to its upside target for what was a very nice trade. It’s been an excellent performer for some time now. Upside potential to 100 but no new trade right now, pullbacks are still buyable though.

- Sasol: it continued higher with the rand helping it a lot as well as the oil price improving. It’s reached and exceeded our short-term upside target. Key resistance is 435-445. But now new trade right now, it is overbought.

- Shoprit: see update above.

- South32: gave the upside breakout we were looking for and it blasted off nicely. Exceeded the first target and the main one given is 32.60. Use a prior one day low on current short-term longs as the stop. No harm in locking in a bit more profit now.

- Stanbank: sport zone at 134.50 to 130.20. It’s buyable with caution, on a reversal day up closer to 130.20. Stop a close below there. Target then 147-150.

- Stein-NV: it remains in a large sideways range but my bias is to the downside still. Key support is 59.80. No new trade right now.

- Tigbrands: see update above.

- Vodacom: buy if it closes above 158, otherwise ignore for now. Support is nearby at 148.90. Aggressive traders only, can buy a reversal day up form there but it’s risky. Stop below that days low, and target to 155.

- Woolies: its stop has not been triggered, which is a close below 68.90. Use also an intraday break below 68.4 if that happens first. Exit/take profits at 74.

GOLD UPDATE: see Chart 3 of the JSE gold index.

- Dollar gold price: its pulling back at the moment from a resistance level mentioned here recently (1261 level). If it closes above 1262 then buy (ideally a decisive close above it). That will point to ongoing strength to 1320. Stop a close below 1239 then. If we don't get that breakout fairly soon, it can pull back to 1230 level in the short-term. But no buying advised then until it’s re-assessed.

USD/ZAR: it’s a bit of a lottery right now but its testing dollar resistance at the 13.74 level. If it closes this week at a 13.75 or higher that will be bearish for the rand still. It is overbought in the short-term (rand oversold). I would not be taking a trade on it either way unless you like gambling. If it can establish itself above 13.75 for a while then we will have a major new leg of rand weakening to come. Potential then to 15.50 med-term. With prior important resistance at 14.60.

5. SHORTABLE (DOWN-TRENDING):

Please note:

➢ We list the stocks, and indices (local and overseas) that are in well-established downtrends and that can be sold short (see Glossary for definition), on rallies to resistance.

➢ Selling short can be done via single stock futures, CFDs, spread trading, and/or put warrants.

➢ One way of trading these stocks/indices is to sell short rallies to the falling 30-day moving average. The moving average tends to act as loose resistance. Wait for a downward reversal at the moving averages before selling short.

➢ NOTE 1: ALWAYS USE PROTECTIVE STOPS ON ALL POSITIONS. Selling short is for short-term traders only, and all positions must be monitored closely.

➢ NOTE 2: The instruments on this list are not automatic shorts, but it is a starting point for looking. Always look at the chart first before making a final decision.

Down-trending Stocks: 30-Day MA:

|ASPEN |277.347 |

|CORONAT |66.7763 |

|DISTELL |141.8887 |

|JSE |144.0063 |

|LIB-HOLD |111.8977 |

|LIFEHC |32.8343 |

|LONMIN |15.8123 |

|MEDCLIN |120.033 |

|NAMPAK |16.6183 |

|NEPI |147.306 |

|RBPLAT |34.095 |

|REMGRO |219.0203 |

|SPAR |180.3307 |

|STEIN-NV |65.7987 |

|SUPRGRP |35.977 |

|WOOLIES |71.497 |

Int’l Instruments: 30-Day MA:

None

OVERALL SUMMARY

Focus on resources stocks right now as some of them (like Glencore and Kumba, for example) are on the verge of new upside breakouts. The potential in this sector is very good. Regarding banking stocks that have collapsed over the past 10 days, there's no sign of a bottom just yet, although key support levels are not far lower than current levels. There is no saying whether those levels will hold. But if they do, we’ll get some good relief rallying in banking stocks (and retailers). For now, there’s nothing to indicate that yet.

The rand does still look vulnerable, but only focus on those rand hedge industrials that are responding to the current rand weakness, many of which have already run hard e.g. Naspers, BATS, Reinet, and Richemont to name a few. Many are still lagging, which is a big concern e.g. Steinhoff, Aspen, Medclin, and Brait.

Gold stocks are also looking much better, and we've shown the important level on the JSE gold index they need to break to really get going. This is definitely another area to focus on right now.

All in all, there is good upside potential in the resources sector, and if resi stocks can maintain their strength into this Friday's close, that will be even more confirming of a significant new rally to come.

Sincerely,

Colin Abrams

TheMarket.co.za

PS: Remember: Protective stops on all positions!

------------------------------

NEXT COURSE DATES:

JOHANNESBURG:

Course 1: Technical Analysis - 14th May 2017 (Sunday)

Course 2: Advanced Technical Analysis and Money Management - 28 May 2017 (Sunday)

Course 3: Developing Trader Discipline (Trading Psychology) - 26 May 2017 (Friday)

 

GLOSSARY OF TERMS USED IN TheMarket.co.za NEWSLETTER:

• Bearish/Bullish Engulfing Pattern: A candlestick whose entire body ‘engulfs’ the body of the prior candlestick. Is bearish if found after a rally; or bullish if found after a drop.

• Bottoming tail: A price candle where the price falls sharply from the open, but then recovers to rally strongly into the close. A bullish sign.

• Breakeven (stop): move your stop-loss to ‘breakeven’, which means once the price has moved a significant amount in your favour, move your stop to your entry price (breakeven) so that you can’t lose on the trade no matter what.

• (Japanese) Candlesticks: Price bars (called ‘candles’) which accentuate the open-close relationship. Is an alternative to the Western bar-chart.

• CFDs: (Contract-for-difference) is a leveraged instrument, like a futures contract except there is no expiry date, and one trades the underlying itself, not a derivative of it.

• Closing price (or the 'close'): the last price of the specific time period chart e.g. last price of the day for a daily chart. If trading on the close, either execute your trade just before 5pm (if the specific signal is triggering), or first thing the next morning.

• Countertrend: 'going' (trading) counter to the main trend. E.g. if the main trend is up, then a countertrend trade will be to sell short. (Note it is always risky to take a countertrend trade, and generally not recommended. Remember, 'the trend is your friend').

Doji candle: A price bar (candle) where the opening price is equal to the closing price. Denotes indecision. Typically precedes a trend change.

• Double top: Refers to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise – all occurring after a significant rally. Bearish.

Elliot Wave Theory: Each trend is made up of five waves in the direction of the main trend. (It can be further subdivided into the same sequence of waves on a smaller time frame).

Fibonacci retracement level: A point where prices typically find resistance/support when retracing a prior move - the most significant is 61.8% (others are 38.2%, 50%, 78.6%).

• Fibonacci extensions: Using Fibonacci numbers (e.g. 61.8%, 161.8%, 261.8%) to project future price targets (or reversal areas) based on the length of prior price swings in a particular stock

• Gravestone Doji: A candlestick that rallies sharply after the open, but then reverses down and closes at same level as the open (which is at the low of the bar). Looks like a gravestone. Bearish.

• Head-and-Shoulders price target: the minimum target is the height of the pattern to the “neckline” projected downwards from the breakdown point.

• Long position: Opposite of selling short i.e. buying because one expects the price to rise

• MA: abbreviation for ‘moving average’.

• MACD: stands for Moving Average Convergence/Divergence. Is the difference between a 12-day and 26-day exponential moving average, plotted as a single line. Shows price extremes.

Negative Divergence: Is typically a bearish sign occurring when an indicator (e.g. RSI) fails to make a new high, but the price itself does i.e. setting up a divergence between the indicator and the price.

• Overbought: an area on an oscillator that typically indicates when more buying than selling (which has pushed prices up) is reaching an extreme level. A fall or correction is then due.

• Oversold: an area on an oscillator which typically indicates when more selling than buying (which has forced prices down) is reaching an extreme level. A rally is then due.

• Pivot high: A high, with a lower high on either side of it.

• Pivot low: A low, with a higher low on either side of it.

Positive Divergence: Occurs when the price makes a new low, but the indicator does not i.e. setting up a divergence between the price and the indicator. Bullish.

Relative Strength (or ‘Ratio’) Analysis: comparing one market or stock to another to see which is outperforming on a relative basis. Not to be confused with Relative Strength Index (RSI).

Resistance: A level above the market where selling is greater than buying (i.e. supply).

• Reversal Bar (Day): Occurs when the price makes a new low relative to the previous price bar’s low, but then reverses and rallies to close above the previous bar’s close (bullish). And vice verse for a bearish reversal day. It typically signals a change in trend. Note, the larger the range of the reversal day, the better.

Reversal candlestick: Typically bullish when the price opens low, then weakens, but rallies strongly into the close, to close near the day's high e.g. hammer, bullish engulfing pattern, piercing pattern. Vice versa for bearish signals e.g. shooting star, bearish engulfing pattern, dark cloud cover. Note, the larger the range of the reversal candle, the better.

Risk-Reward ratio (good): A trade where the potential profit is at least 3x the potential loss.

Selling short (or ‘shorting’): Expecting prices to drop, so selling first and buying-back later.

Short position: A trade where one has sold short (as above)

Shooting Star (candlestick) – A candle that suggests a minor (at least) reversal. The body of the candle is near the low, and the line has a long upper ‘tail’.

Spot Price: the price of the underlying instrument itself i.e. not the futures price.

Support: A level below the market where buying is greater than selling (i.e. demand).

SSF's: Single Stock Futures.

Stop-loss: point where you close the trade if it moves against you - to protect yourself.

Time frames: (approximately) Short-term: 0-6 weeks; Medium-term: 2-5 months; Long-term: 1yr + (for purposes of TheMarket.co.za analysis report). For The Big Picture newsletter, long-term is defined as 2-5 years.

Trailing stop-loss (or ’trailing a stop’): moving the stop in the direction of the market to lock-in profit e.g. a breaking of prior day’s high/low, or a percentage retracement of the current move (e.g. 50%), or the breaking of a moving average e.g. 10-day MA for the short-term, or 50-day MA for medium-term.

Weekly close: the closing price on Friday afternoon.

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DISCLAIMER:

The information contained in this analysis and/or report is not to be construed as advice in terms of the Financial Advisory and Intermediary Services Act of 2002, and is given for information purposes only. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services.

Information for stock and index observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock/index/commodity/or currency observations and opinions are entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. The information provided here is for interest and educational purposes only, and does not constitute advice. The editor and publisher of TheMarket.co.za newsletter will not be held responsible for losses incurred as a result the opinions expressed herein. All information herein is based on opinion; markets follow their own course. You must assess the risk of any trade and make your own independent decisions regarding any securities mentioned herein (or options thereon). We will from time to time have a position in the securities described herein. One should always use protective stops on all trading and investment positions. There is a risk of monetary loss in trading and/or investing on the financial markets.

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