The last few weeks have been some of the most extreme times in recent market history, at least from our perspective. We’ve seen a pretty extreme sell off, largely driven by fears around the coronavirus. What is of even more concern to us is that the U.S. Federal Reserve Bank cut interest rates by 50 bps in an emergency rate cut. Historically, when the FED responds this drastically it is usually a sure sign that something big is happening. To illustrate this, past times that the FED cut by 50 bps include 1998, 2001 and 2008. We’ve also seen some massive REPO operations, one REPO last week topping $100bn. Combined with some reports around potential liquidity issues looming, we’re rather worried that things are about to get a whole lot more interesting. Moreover, in the face of lower demand for Crude Oil, Saudi Arabia has decided to increase oil production in order to maintain market share. This leads us to expect significantly lower oil prices in the weeks to come, which will likely have a knock-on effect on commodity prices.
There are interesting times ahead and we want to encourage traders to be careful, trade small, stick to stop losses and make sure that they are not taking unconsidered risks or taking unplanned, reactive trades.
Tracking the weekly chart on the USDZAR, we note that we have not yet gotten a trigger for this trade. Given the context in global markets though, we are starting to feel confident that we will see some Rand weakness in the weeks to come. If we have another week of severe risk off sentiment, Emerging Market currencies will very likely come under pressure. This creates an opportunity for us by potentially trading a move from around 15.70 to 16.30. If this weekly flat top triangle pattern plays out, targets are as high as 18.40.
Well, this is a rather scary chart to be honest. We note at roughly 50% Fibonacci retracement on the recent downward break from the channel. A 50% Fibonacci retracement usually resolves in an equidistant ABC type move in the direction of the initial thrust. In other words, if the SPX takes out the lows printed on the 28th of February, we could see it trade as low as 2600. This might be a bit of an alarmist call… and we’re sure that many might disagree with us, although we are keeping an open mind to this being a possible outcome.
SHP has us scratching our heads a little. If you connect the wicks on the weekly candles, it indicates to us that there could be a potential bearish reversal from the trend line and a bearish continuation. In other words, the down trend persists and the stock is offering a good entry for a very high risk:reward short position. If however you connect the wicks on the daily chart, it looks as if price has broken above the downtrend line and might be attempting a bullish break out. That said, we prefer the view using the weekly chart, rather than the daily chart, thus our bias here is to the short side of this trade. We will more than likely have to keep an eye on this setup for a few days before making a move here.
We are currently short on SOL. Our initial target was R160, although we have now moved that target lower to R130. Given the news around Saudi Arabia increasing Crude Oil production over the weekend, we could potentially see SOL trade even lower than our adjusted, more greedy target. This chart (weekly timeframe) is super scary and might even feel unrealistic, but then, these are financial markets and crazy things happen all the time. The bear flag formation targets around R80 a share and with the tailwind of sustained oil prices below $40, driven by a ramp up in production from Saudi Arabia and decreased demand due to lower economic activity caused by the coronavirus, we could potentially see a rights issue from SOL in the near future. Further, given the extreme conditions and volatility in markets at the moment we are not super keen to open too many new trades. Hence we are happy to focus on trades that we are currently in so that we can manage them in such a way that we might maximise profitability and keep a lid on risk. This is the kind of market in which you have to hold onto your winners for dear life. Well, that is actually true of all market conditions.
Gold – requested
Gold has been in a solid up trend for the last 4 years. Lots of fear to drive it higher. With a weekly time frame, some potential targets to the upside shown.
Discovery – requested
We see a potential bearish break from a rather large range on the weekly chart for DSY. It was very close, but did not trigger at last week’s close. Something to keep an eye on the coming week.
*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.
Herenya is growing!
We’ve added a new blog! Well, we’ve actually added a few new members to our team so that we can expand and improve the service offering that we give our clients. Our international investment team will be focusing on investment and trading opportunities in international markets. You can keep up to date with their views and and outlook on the International outlook blog page. We’ve also enlisted a specialist tax consultant that is able to provide a wide range of tax consulting, structuring and administrative services. With the recent tax year just coming to an end, perhaps you should consider letting our tax consultant help you with your returns? Who better to help investors and traders with tax affairs than a tax consultant who specialises in working with investors and traders? Contact us if you have any tax questions. For now we’re not going to give away too much more, but keep an eye out for new developments and a few more exciting changes… because they’re coming!