And just like that, it’s Christmas time. The market will likely be very quiet during the next week or two, but do not let the low volume environment fool you, there will still be opportunities. That does not mean that we have to hit the market hard every day during the next two weeks, it just means that we have to be awake and keep our eyes open for opportunities. That said, we’ll probably be taking it rather easy over the next two weeks ourselves. Anyway, let’s look at markets. For the most part the good sentiment from last week remains pretty strong. The U.S. closed at record highs, energy prices are on the rise and the Rand is getting much stronger. These do feel like the circumstances for a Santa Rally, so provided no major fundamental catalysts appear in the next two weeks, our bias is bullish.
Looking at the Rand/Dollar exchange we see a relatively large downward sloping channel and price currently around the lows of the channel. For our strong bullish bias (for local banks, retailers and Emerging Markets in general) to remain intact, we would like to see that lower, downward sloping support line either break, or act as a guide for the Rand to continue to strengthen toward that R13.85 level. A sharp reversal off this trend line would be a warning sign for us with regards to the long positions we took in banks last week.
CFR currently looks vulnerable to us as we hold the view that the Rand will continue to strengthen towards R13.85. Thus the Rand hedge effect is likely to work against CFR in the short-term. We see support at R108 a share and will be watching for either buyers to step in at this level significantly, or a daily close below the level to trigger a short.
Last week some news came out indicating that Sasol’s LCCP project is starting to solve some issues and ramp up production. Over the next few months more and more production is expected to come online. We believe that the market might not be seeing the wood for the trees here and like SOL for a longer-term buy around these levels. In the shorter-term though, we see a broken range and a potential upside target of R365. We would like to see either a retest of the breakout by means of a consolidation around the breakout level, or very strong buying to come into the market in order for us to enter into a short-term long position here.
Kumba Iron Ore
KIO has been forming an Inverse Head and Shoulders over the last few week, which has triggered a long already. We note now that it seems to have back tested the breakout levels and given the positive trade sentiment globally, we would not be surprised to see this stock move to the full target of R466 in the coming weeks.
*Please note that these trade ideas for part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.
We’ve added a market data page on which we have selected some of the indicators that we feel are worth staying aware of.