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Welcome to TheMarket.co.za Weekly Analysis Report
Date of Issue: 03 August 2016
By Colin Abrams
|Classic Trading Rule: |
|“The closing price is the single most important price of the day. The Friday close is the single most important price of the week. The closing price is |
|important because positions at that price demand overnight margin.” |
UNDERLYING STRENGTH IN S&P AND RESI
Introduction:
We’re currently seeing a short-term consolidation in the S&P 500 index (sideways to slightly down) but its going to be temporary, and one should be looking for it to head back up again next week, if not sooner (the US market is usually weak in the first week of August). While the strong rand is keeping a lid on large-cap industrial stocks at the moment (which are rand hedges), the resources (resi) sector on the JSE looks to be building up for a good rally. There is underlying strength there, and this sector looks to nearing a broad-based breakout, as shown on a JSE resources 10 index chart herein.
Starting with the S&P 500 chart as usual, it still has a clear upside target, and I expect it to remain firm for a bit longer. The JSE All Share index chart shows it testing some support right now, but unless the rand weakens soon, the All Share can still drift lower. I do feel though that the recent lagging of the All Share index is not just due to the current stronger rand. Then, besides the Resi 10 index chart, we show the USD/ZAR, which can still strengthen more in the short-term. But the dollar is very oversold (rand overbought) and notwithstanding a bit more strength one should be on the lookout for a rand reversal again soon. The stock charts shown are: Sasol (oversold, testing support), Richemont (another downside break for shorting), and Stanbank (a buyable pullback).
The small (mid)-cap chart is Invicta, which looks interesting, with two higher targets.
Overall, the stock market locally and overseas is in a short-term consolidation mode, but this is a pause before heading higher again, particularly in the US. The JSE is a bit on its ‘own track’ at the moment, and apart from its large rand-hedge stocks that are currently being held down, there are a lot of good-looking short-term opportunities on the buy side for now.
|Executive Summary: |
| |
|S&P 500 (chart 1): Add to longs on a close above 2176. Buy on a prior one day high break if not in. |
|All Share Inx: (chart 2): Traders buy on a clear reversal day/candle up, with great caution |
|Resi 10 Inx (chart 3): A close above line 2 will be a buy signal on resi stocks for aggressive buying. |
|USD/ZAR (chart 4): Sell short the rand on a reversal week. Very aggressive traders can still buy the rand |
|Sasol (chart 5): Buy some now, and the rest on a further one or two day pullback |
|Richemont (chart 6): Sell short at current levels for another short-term drop |
|Stanbank (chart 7): Buy a pullback to R136.50 or lower |
|Invicta (chart 8): Buy on a minor pullback to R56.50 level. |
|Leading Stocks (3-mths): Top 40 – Anggold, Mr-Price, Nedbank, Shoprit, Stanbank, Tigbrands, RMBH |
|Resources 10 – Gfields, Anggold, Sibanye, Implats, Angloplat. |
|Shortable stocks/instruments: 13 |
1. MARKET CHARTS
S&P 500 INDEX – Temporary blip on a bullish chart
Broad Recommendation: HOLD/LOOK TO ADD TO
Current Trend: Short and med-term up. Long-term sideways to up.
Strategy: Add to longs on a close above 2176 (line 6). Buy on a prior one day high break if not in.
Chart 1. (Daily)
[pic]
Chart Setup: The S&P has moved very sideways over the past week. Last night it did close below in 1 (2159) which we said could be used as a very tight stop if desired, although my preference was to keep the stop wider (below 2129). If you were stopped out, look to get back in. There is still a higher target from a cup and handle pattern. The only question is when the next leg up will start.
• Note, the first week of August is typically weak for the US market seasonally, so we should get moving up again next week sometime.
• Its short-term Stochastic (on top) is pulling back from an overbought level and is not oversold yet, so the index can still pull back more before heading up.
Strategy Details: Hold current longs. If you were stopped out look to get back in on an intraday break of its prior one-day high. A close above 2176 (line 6) will be for adding to current longs.
Target: Up to 2230-2235, based on the cup and handle. Take partial profits at 2220 though, which is the target from a broadening formation formed by lines 2 and 3.
Stop-loss: My preference is still to keep the stop fairly wide for now to give it space i.e. as a close below 2129 (line 2). Once it closes above 2176, bring the stop up to a close below 2157. From 2220 (take partial profits and) raise the stop to a breaking of its prior two-day low; then prior one-day low from 2230.
JSE ALL SHARE INDEX – Short-term still vulnerable [Signals done on alsi future]
Broad Recommendation: LOOK TO BUY (WITH CAUTION)
Current Trend: Short-term up. Med- and long term sideways.
Strategy: Traders buy on a clear reversal day/candle up, with great caution.
Chart 2. (Daily)
[pic]
Chart Setup: It continues to be a case of a week up a week down a week up etc. Very difficult to trade on an end-of-day basis, but my bias is still marginally to the upside here for the time being. The index is testing support at line 4 and hasn’t given a reversal day/candle yet over the past week for buying. One should still continue to look for one. (It gave a bearish reversal weekly candle last week – not shown, which accounts for the current pullback).
• Its short-term Stochastic (on top) is reaching its oversold region, but can still drop for another couple of days before being fully oversold.
Strategy Details: The strategy is to either avoid trading this index of the time being, or to look to go long (buy) on a clear reversal day/candle (see Glossary) up. This is not a high conviction trade though.
Target: If we get that bullish reversal, look for a rally to line 3 (53 940). Take partial profits there. Take more profits at line 5 if reached (54 760). Potential to lines 2 and 6 at the 55 260 level.
• To the downside, if we don't rally soon, look for support at 51 550, then 51 300.
Stop-loss: A close below the low of the reversal day/candle up. From 53 770 (as it nears line 3) raise the stop to a breaking of its prior one-day low. Take partial profits at line 3 (53 940). And continue with that one-day low stop until it is triggered or line 5 (54 760) is reached, to take profits.
JSE RESOURCES 10 INDEX – New breakout potential
Broad Recommendation: BULLISH BIAS/BUY A BREAKOUT AGGRESSIVELY
Current Trend: Short-term up Med-term sideways. Long-term technically still sideways to down.
Strategy: A close above line 2 will be a buy signal on large-cap resi stocks for aggressive buying.
Chart 3. (Daily)
[pic]
Chart Setup: The chart of the resi 10 index has morphed into a med-term broadening formation with a flat (horizontal) boundary (lines 1 and 2). Prices typically break out of the horizontal side of such patterns.
• In addition, in the short-term it has formed a head and shoulders continuation pattern (s-h-s). This is likely a ‘launching pattern’ for a breakout above line 2.
• Its short-term Stochastic (on top) is neutral, providing no real clues. Its weekly Stochastic (not shown) can still move higher.
Strategy Details: My bias is still to the upside for large-cap resi stocks (besides the ones that are clearly already rallying sharply, like gold stocks, platinum and other selected resi stocks, like Kumba). However, a clear close above line 2 (32 730) will be a signal for buying resi stocks more aggressively (for traders), particularly the ones that have lagged like Anglo and BHPBilliton.
Target: If we get that breakout it will set up a minimum target to 36 900. (This index is currently at 31 845). Note, the index can also be bought via the SatrixRes ETF.
Stop-loss: The current stop for short-term resi positons, using this index as the guide, is a close below line 3 (30 400). But once it closes above line 2 (32 730), raise the stop to a close below 31 950 (for traders). -From 35 300 on this index, raise your trailing stop to a breaking of a prior two-day low (and on the individual resi stock/s you’re trading).
USD/ZAR – Rand can still go stronger
Broad Recommendation: LOOK TO SELL SHORT RANDS
Current Trend: Short and med-term rand strength (but overbought). Long-term rand weakness.
Strategy: Sell short the rand on a reversal week. Very aggressive traders can still buy the rand.
Chart 4. (Daily)
[pic]
Chart Setup: The rand being notoriously tricky to forecast has continued strengthening. While this is somewhat surprising, perhaps it shouldn’t be, because there is a head and shoulders pattern (labelled S-H-S), still pointing to rand strength. Lines 2 and 3 form a wide channel, and it’s likely the rand will start weakening again when it gets closer to line 2.
• Its short-term Stochastic (on top) is giving a series of positive divergences (for the dollar), warning of a reversal. Its weekly chart (not shown) is oversold for the dollar as well. So the odds do favour a reversal to occur. But for now, the rand is still strong
Strategy Details: Wait for a reversal week to sell short the rand (bullish reversal week for the dollar). In the interim, very aggressive traders can still go long the rand on a breaking of its one-day low (todays low is 13.95 so far), but with great caution.
Target: The head and shoulders is pointing to 13.42 as a target. Line 2 is at the 13.49 level. So, if you do want to chance going long the rand still, take profits near 13.50. For a weekly reversal to short the rand (when it happens), look for a move to 15.10 for partial profit taking, then line 3 at 15.30.
Stop-loss: For an aggressive rand long, use a close above 14.17 as the stop. Once it trades down to 13.77 again use a breaking of its prior two-day high as the stop. Then prior one-day high from 13.69.
• For shorting on a reversal week, the stop will be a daily close below the low of that reversal week.
SASOL (SOL) – Hits support zone
Broad Recommendation: START BUYING
Current Trend: Short and med-term down, but oversold. Long-term sideways.
Strategy: Buy some now, and the rest on a further one or two day pullback.
Chart 5. (Daily)
[pic]
Chart Setup: After a steep drop in recent months, and particularly over the past week, Sasol has reached important support at line/s 1 (R361-R354). On Tuesday it gave a bullish reversal candle there, but I think it can still have another couple days sideways or down movement before rallying back. Either way, it’s in a low-risk buying area.
• Its short-term Stochastic (on top) is oversold, as is its weekly Stochastic (not shown).
Strategy Details: Start buying part of the position now, and buy the rest on a one or two day pullback. (If it doesn't pull back, then enter the second part of the trade on a reversal week up).
Target: Look for a move to line 4 at least (R399/R400). (It will probably stop there for a while and from a potential right shoulder of a inverse head and shoulders, before heading higher to R450; but it’s too early to say, we’ll update as it progresses).
Stop-loss: The maximum downside risk here, as I see it, is to line 3 (R343). So for now, place your stop as a close below there. Once the price closes above R380 move your stop up to breakeven (your average entry). And from R394, raise the stop to a breaking of its prior one-day low (while taking trading profits at line 4).
RICHEMONT (CFR) – New short-term breakdown
Broad Recommendation: SELL SHORT
Current Trend: Down on all main timeframes.
Strategy: Sell short at current levels for another short-term drop.
Chart 6. (Daily)
[pic]
Chart Setup: Richemont which has been a consistent underperformer for some time, has closed below line 1 to confirm a (bearish) short-term head and shoulders continuation pattern (s-h-s).
• Its short-term Stochastic (on top) can still drop further before becoming oversold.
Strategy Details: Traders sell it short at current levels, but with a relatively tight stop.
Target: Down to R77 i.e. the height of the H/Sh projected down. Note, there is some potential support at line 4 (R78.70) going back to 2013, so lock in partial profits there (e.g. a third).
Stop-loss: Initial stop is a close above Tuesday’s high of R83.82. From R78.80 lower the stop to a breaking of its prior two-day high, then prior one-day high from R77.70.
STANBANK (SBK) – Chart still bullish
Broad Recommendation: BUY A PULLBACK/HOLD IF IN
Current Trend: Short and med-term up. Long-term sideways
Strategy: Buy a pullback to R136.50 or lower.
Chart 7. (Daily)
[pic]
Chart Setup: We advised to buy Stanbank recently when it broke out above line 2, which confirmed an ascending triangle (with line 1). It’s had a good run so far, but gave a classic bearish reversal candle on Tuesday and is likely to pull back a bit before heading higher again. One should be looking to buy it if not in.
• Its short-term Stochastic (on top) is giving a negative divergence (see Glossary) from its overbought region, warning of this pullback.
Strategy Details: Hold if in. If not in, buy on more of a pullback to R136.50-R134.80 (on a reversal day/candle up). Current positions can be added to then as well.
Target: Minimum upside target is to R148-R149.50 i.e. the height of the triangle projected up. (Take partial profits at R148, and the rest at R149.50).
• In the interim, expect a pullback to R136.50-R134.80 as mentioned.
Stop-loss: Place your stop as a close below line 2 (R131.80). But once it trades up to R145 raise the stop to a breaking of its prior two-day low; then prior one-day low from R147.80 (and take profits as advised above).
2. SMALL-CAP. CHART
INVICTA (IVT) – Higher targets on recovery path
Broad Recommendation: BUY A PULLBACK
Current Trend: Short and med-term up. Long-term sideways to down.
Strategy: Buy on a minor pullback to R56.50 level.
Chart 8. (Weekly)
[pic]
Sector: Engineering Price: R58.29.
Chart Setup: Invicta a former high-flyer, and more a mid-cap stock, has broken out of two chart patterns, after a massive sell-off since 2014. The first is a symmetrical triangle (lines 2 and 3) the other is a large inverse H/Sh, with line 1 as its neckline. There are two higher targets in place.
• It is overbought in the short-term, as well as its weekly Stochastic (on top). So a correction is likely here before it heads higher.
Strategy Details: Buy it on a minor pullback to the R56.50 level.
Target: Target 1 is R66.70 i.e. the height of triangle 2-3 projected up. Take some short-term profits there. Target 2 is R94, measured as the height of the inverse H/Sh projected up (more med-term).
Stop-loss: Short-term stop is a close below R52.25. Med-term stop is a weekly close below line 2 (R48.20). But once it gets to Target 1 (R66.70) move the med-term stop up to a close below R54.
Other small-caps of interest (alphabetically): (shares to consider on a pullback)
• Adaptit, Adbee, Afrimat, Curro, Hosp-B, Howden, Huge, ISA, Pinnacle, Pivotal, SA-Corp.
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: Anggold, Mr-Price, Nedbank, Shoprit, Stanbank, Tigbrands, RMBH.
Weakest seven Top 40 stocks: Capco, Investecs, Brait, Sasol, Richemont, ItuPlc, SABMiller.
Strongest five Resi 10 stocks: Gfields, Anggold, Sibanye, Implats, Angloplat.
Resi 10 vs. Findi 30 over 3-months: Resi 20 is stronger (note the change). The two are again approximately even and ‘jostling’ for position.
4. NOTES & UPDATES: - Concerning last newsletter’s index stock charts:
- Anggold: triggered both the regular and aggressive entries. It’s a hold and the target is up to R337 at least, and potentially R350. Some lock in half profits at R337, and the rest at R348-R350. The short-term stop is a close below 300. From R335 raise the stop to a breaking of its prior two day low, then prior one day low from R345.
- Implats: gave the upside breakout to trigger the buy signal. It moved up nicely to reach its first profit target (61.70) for partial profits, and the second target is still in place at 72. Raise your stop to breakeven on the remainder of the position, and from R65.70 raise the stop again to a breaking of its prior two-day low. Then prior one-day low from R68.50. I think overall the price is going to continue up significantly higher. Corrections will remain buyable.
- Mr-Price: it’s had a good run, stopping short of its first target (235.40) so far. It sold off sharply on Tuesday and can still pull back more in the immediate short-term. But overall I still like its chart and expect it to continue higher again soon. It’s a hold and the stop for traders, is still a close below R212.70. Once it gets to R234, raise the stop to a breaking of its prior two-day low for short-term traders, and take partial profits at the R235.40 target. Raise your stop to a prior one-day low on the remainder from there. Pullbacks will remain buyable until its second target is reached at R280. Note, if not in, a reversal day/candle up from current levels or lower can still be bought, using the same stop and target parameters.
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):
- Reinet, BATS, Firstrnd, ARM, RMIH, Hyprop, Vodacom, Aspen, Capitec, Bidcorp, Bidvest.
- Anggold: see update above.
- Angloplat: The first target has been reached. The second target is 480. Use a breaking of its prior two day low as the trailing stop on the second half of this trade, then prior one day low from 471.00.
- Anglo: start taking trading profits from 162-168. Short-term traders use a breaking of its prior one day low as a trailing stop. Potential to 170 short-term. Pullbacks are buyable, particularly if the JSE resi 10 (Chart 3) breaks out.
- ARM: a close above 103.80 will be a buy signal, and will setup targets of 113.50/115 for short-term profits; and 134 med-term. Short-term stop will be a close below 97, then a prior two day low from 112.
- Aspen: it’s giving a welcome pullback. Larger target is 477 but the question is there to get in. If it pulls back a bit more e.g. to/near 355 buy on a reversal day up. In the meantime, more aggressive traders can buy before then if it closes above 375. (Stop then a close below 364.50). But if buying closer to 355 the stop will be a close below 347. My preference is to buy it lower e.g. 355 level. Start locking in trading profits from 395. Use a breaking of its prior two day low from 387.30 as a trailing stop.
- BATS: hold. Stop is a close below 876.50. (If stopped out look to get back in the next clear reversal day/candle up because it’s very oversold). In the meantime, a close above 899 will be a new buy signal if not in. Targets are 930 and 945 for partial short-term profits. Potential to 970 to 985.
- BHPBilliton: it’s in an extremely choppy sideways range and no trading advised for now in it. A decisive close above 197.9 will be a buy signal, for a move to 230 (but it needs to do a lot of work to get to that buy signal first).
- Bidcorp: It gave the first reversal day/candle up on Monday on its current decline and is a buy. Or if preferred, a more conservative entry is a close above 279.76. Target then will be 304 at least (for partial profits, then 315). Stop is a close below 257. Then prior 2 day low from 300.
- Bidvest: gave a classic bearish candle down on Monday. It is a short but for aggressive traders. Take partial profits at 150, and the rest at 145.80. Stop a close above 165, then prior one day high from 150.50.
- Brait: while technically it’s a sell short on bounces, it’s too oversold right now to short.
- Capco: downside potential to 50-47.80. It needs to give a bullish reversal week to warrant buying.
- Capitec: hold. It bounced of its 600 support level and I still have a target to 650. For now stop still a close below 600. Once it closes above 629.10 raise the stop to a breaking of its prior 2 day low, then prior one day low from 642.
- Discovery: pulled back from the resistance level mentioned last week. It also ended last week with a bearish reversal week. I will probably sell-off more in the short-term as a result. But overall it’s in a med-term sideways range. Main support her is 113. To the upside if it closes above 131.20 to give a breakout then it’s a buy for a rally to 151 med-term.
- EOH: gave there reversal up for buying. It’s not blasting off though which is a concern. Target is157. Keep the stop tight as a close below 139.30.
- Exxaro: hold. Stop is a close below 79.60. Once it trades above 87.90 raise the stop to a breaking of its prior one day low. Target is still 90.
- Fambrands: reached both upside targets and stopped just short of 142 so far (mentioned last week). I think it will get to 146 soon.
- Firstrnd: hast quite reaches its 51.80 target yet, although quite close. Its prior one day low stop was triggered to lock in half profits. Hold the second half and buy back the first half (or buy if not yet in) on a reversal day/candle up from 48.40-47.40 (ideally closer to 47.40 if possible). Target 51.80. Stop is a close below 46.70.
- Gfields: has reached its 90 target. If you still have some on use a breaking of its prior 1 day low as the trailing stop. Take more profits at 94.50/95.
- Glencore: hold. Take some short-term profits at 36.70. A close above 37 will setup a med-term target to 46.40 for buying back the part sold.
- Growpnt: keep holding. Minimum target is 27.80, potential to 28. Raise stop to below 26.00. Then a prior 1 day low from 27.50.
- Harmony: keep holding. Take partial profits at 69.70. Further potential to 72.50. Stop is a close below 62.60. From 69.70 raise it to a breaking of its prior 2 day low.
- Hyprop: med-term target to 178. Pullbacks are buyable to there. Right now look for a pullback to 132.50 to buy or lower (on a reversal day up). Stop will be a close below 128.50.
- Implats: see update above.
- InvPlc: triggered the mentioned short signal and reached the downside target a few days later. It remains vulnerable and can still get to 78.80.
- Kumba-IO: reached its short-term target of 146. It can still get to 170 but overbought right now. Look for a pullback to buy, e.g. from 122. Bigger picture it’s looking very positive.
- Medclin: is on some support right now at 191. If it breaks down further then will probably get to 183.50 level. No trade advised yet.
- Mr-Price: see update above.
- MTN-Group: has pulled back from resistance and apparently isn't ready to break out yet (a close above 152). Support is 128-124. It will need to give a reversal day up in that zone for buying. Stop a close below 124. Target to 148.50.
- Naspers-N: has pulled right back to a level of short-term support. No buy signal was triggered, but right now be on the lookout for a reversal day up from current levels or lower (e.g. 2100). Stop will be a close below 2090 an target to 2275-2300.
- Newgold: buy on the next reversal week up. Target to 196. Stop below that reversal weeks low. Needs the rand to weaken again.
- Old Mutual: Its still very sideways range bound overall and too volatile in both directions to trade.
- PNR-Foods: it’s still a hold. Stopped jut short of our stop tightening level of 191 but I think will get back there soon. Main target is 196. Once it gets back aibve189 raise stop to a prior 2 day low. Current stop is breakeven, or a close below 174. Take part profits at 191.
- Reinet: is still not going, but it’s a hold. Stop is a close below 30.65 initially. If not in, buy on the next reversal day up. Target is 34.90/35 initially for part profit taking. Take more profits at 35.40 if reached. Further potential to 36. From R34.50 raise the stop to a breaking of is prior one-day low (and take half profits at R34.90).
- Resilient: it’s still a hold but stop is in danger of being triggered i.e. a close below 134. Target is 141. Then prior one day low stop from 140.
- Richemont: see Chart 6.
- RMIH: I still like the look of its chart. Look to buy on a pullback to 43.10 or lower (on reversal day up). Target is 48. Stop a close below 41.70.
- SABMiller: we advised to take half profits on shorts last week. Target is still 765 but when a stock is so much at the forefront of news events right now (its merger) it can be very risky to trade. My feeling is to take remaining shorting profits now. We’ll re-assess after a bounce.
- Sanlam: it gave a minor pullback to buy. Target is 75.70 but I think it’s going to have some dips before getting there. My feeling is to use a prior 1 day low as the stop right now. If we get a larger pullback e.g. to below 64 look at buying it again.
- Sasol: see Chart 5.
- Shoprit: I still one of the best opportunities on the market med-term+. It’s too overbought still to buy right now though. Look for a correction e.g. to 189 or lower to buy on a reversal day up. Target to over 250 med-term.
- Stanbank: see Chart 7.
- Stein-NV: a bearish reversal day on Tuesday and its overbought with a neg. divergence on its Stochastic, so all in all it’s looking likely to have a pullback. I would exit if long (traders only). If it sells off to the 83.30 level it will be worth buying. But for now it looks vulnerable. Technically it still has a target up to 92.80. So if your preference is to hold on a bit longer, place the stop as a close below 85.
- Tigbrands: pulled back to our mentioned buying level. It’s a hold, but can still pull back again in the short-term. Stop for he short-term only is a close below 387. Short-term potential to 415 for some profit taking. Med-term+ I'm looking for 560 as a target. So if the market sells off a lot in October, this is one stock to be looking at buying aggressively.
- Vodacom: has kept drifting down with no reversal day up yet to buy on, as advised last week. It has in fact closed below some important support right now. It is oversold though, so it won't surprise me if it reverses back up soon. Buy it on a reversal week up. Or for more aggressive traders, buy on a reversal day up, as well as a close above 160. Stop will be below the low of the current short-term correction. Target potential then to 169.50-171.50.
- Woolies: is giving a pullback at the moment after a good rally. Look to buy this pullback for another leg higher. Look to buy from the 86.80-85.50 range on a reversal day/candle up. Stop a close below 84.80. Target 92.80 for partial profit taking, then 99. From 92.80 raise stop to a prior two day low on the remainder.
GOLD UPDATE: The JSE gold index has given a new short-term upside breakout as per its chart shown here last week. It does look like it will go higher in the short-term. I'm looking for 3240 as a target short-term. But keep in mind, at some point in the not too distant future we’re going to get a sizeable correction in gold shares. But for now it’s still looking ok. But tighten stops generally speaking on gold shares. Use a breaking of its prior two day low on the index as a guide.
- Dollar gold price: triggered the new buy signal and has had a short-term rally. It has a target of 1405 then 1420. Hold with the stop for traders a close below 1338. Then prior two day low from 1398.
USD/ZAR: see Chart 4 for details.
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:
|BRAIT |129.6473 |
|CAPCO |56.5923 |
|INVLTD |87.8507 |
|INVPLC |87.4417 |
|ITUPLC |54.8987 |
|LEWIS |44.9643 |
|MPACT |31.5823 |
|NET1UEPS |147.521 |
|RICHEMONT |84.5963 |
Int’l Instruments: 30-Day MA:
|I-TBOND30 |2.2633 |
|C-$-JYEN |103.46 |
|C-GBP-$ |132.4833 |
|C-GBP-ZAR |1925.437 |
OVERALL SUMMARY
Besides the S&P 500 index still looking good (and I’m expecting at least one more rally there). On the JSE, resources stocks look good with a new (potential) upside breakout in the resi 10 index looking likely. While gold stocks have been leading for quite a while in this sector, followed by platinum stocks that are now catching up, we may well get a more broad-based resources rally coming (on a resi 10 index breakout).
Elsewhere, I still like the look of banking and retail stocks. They've pulled back a bit in recent days and this pullback should be viewed as a short-term buying opportunity (ideally on another day or two of pulling back).
And finally concerning the rand. I has surprised by its current strength (which may get reversed if the ANC does well in this election by holding onto the three main city metros in contention). But really as far as large-cap rand hedge stocks go, they need the rand to weaken again. One needs to watch these rand hedge stocks because most of them are oversold, and we may well get a good buying opportunity in them soon.
Sincerely,
Colin Abrams
TheMarket.co.za
PS: Remember: Protective stops on all positions!
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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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