Weekly game plan 23 February 2020

It is starting to feel a little like the roll-over we were on the lookout for in U.S. markets last week is beginning to happen. Gold is pushing a lot higher on the back of growing coronavirus concerns as Italy enters the early stages of lock-down due to the virus spreading within its borders rapidly. We’ve seen videos of scores of people queuing outside banks in China and rumours of Chinese banks not having liquidity for withdrawals. The situation is getting worse. Morbid, perhaps, but now that the virus is starting to spread beyond China, we believe that we will gain some more accurate insight into how fast the virus spreads and kills as we do not know if we can believe the numbers that have been reported so far. We also note that currency volatility is starting to edge higher from multi-year, if not multi-decade lows, while emerging markets simply can’t get a leg up.

Gold

Gold, of course, is the safe haven asset that investors will flock too in times of great fear. Combine that with historically high liquidity injections into global markets from central banks the world over and you have a recipe for a potential push to the highs of 2011.

Gaining access to this Gold rally can be done in a number of ways. We showed a bullish setup on Goldfields in our game plan on the 2nd of February which seems to be working out well so far. This trade might be a little too late to chase now, depending on your risk appetite of course.

Harmony Gold

HAR on the other hand seems to be breaking out a little later. Our traders picked up a nice weekly setup on HAR with a good risk-reward that we will very likely enter on Monday morning. Note that this is a weekly chart and thus this trade might take a good while to work out, especially considering that the stop loss some 20% lower and the target over 40% higher. Smaller positions are encouraged in order to comfortably manage both volatility and funding interest during the tenure of this trade.

Old Mutual

Risk off spells weakness for South African financials… also, the trend is very much down.m We note that OMU is starting to signal a short trade out of a large multi-month consolidation. We would like to see a close below Friday’s close to confirm this trade, so thus there is no signal for us just yet. We are keeping an eye on this setup though as we like the risk-reward ratio and are fans of trading with the trend.

Nedbank

Initially we thought that NED could give us a long opportunity on the back of a falling wedge formation and support around R198. The support level failed and the falling wedge was invalidated and thus the stock open up for a potential move down to the lows of the ‘support zone’. This is a higher risk trade with a stop loss just above the highs of Friday’s close and a target at the lower end of the support zone. It offers a decent risk-reward, although the risk is that volatility could take out the trade unnecessarily. That said, it is with the trend and a significant support level has been broken.

MTN

MTN has not been our favourite stock and we have been negative on it for some time. We note that there is a potentially bullish ABC pattern targeting R95.30. We would need to see a bullish consolidation break in order to trigger this trade though, and give the context of the global market backdrop, we are open to the possibility of this stock moving back down to test recent lows. For now there are no triggers, but it is something we are watching.

S&P500

We noted some bearish divergence on the S&P500 last week and would like to point out the channel in which this index has been trading. We feel that if the SPX can break this channel to the downside, we could see a larger scale correction in the coming weeks. This we believe could be driven by coronavirus fears and the global economic slowdown that is starting to take hold due to the virus’ impact on China. Whether or not this is the end of the bull market as a whole… we’re not so sure. Could we see a proper correction here? We think so.

*Please note that these trade ideas form 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.

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