Weekly game plan 5 April 2020

It feels as if we are on the edge of battle. The air is still and so thick with tension that it is hard to breathe in. There is an eerie quiet all around us. South Africa has done a fantastic job of getting ahead of this COVID-19 crisis. We’re putting up multi-thousand-bed makeshift hospitals in every major city, we’re gearing up mobile testing units and our government is communicating clearly with the general public. Well done South Africa. Well done President Ramaphosa. Still though, this anxious feeling that this is the calm before the storm is just one that we cannot shake. Once again, we want to ask everyone reading this to not only stay at home, but also to be kind and supportive to others.

Alright then, let’s look at markets. For the most part it is not a pretty picture out there and our overall outlook is still one of extreme caution. There are some potential opportunities that we will be keeping an eye on in the coming week though.

USDZAR

Well… there is not much we can say here really. Four weeks ago R18.44 seemed like madness and yet, here we are, R19.02 at the close on Friday. This completes the setup we’ve been tracking and thus we have to now wait for a new setup to emerge before we can get involved again.

That said, we mentioned on twitter that we would expect that the Rand to start to recover from here. These extreme blow-outs don’t tend to last and when comparing currency reactions of other countries (e.g. Brazil) post-downgrade, they tend to recover. Thus we are optimistic that the Rand will start to recover some time over the next week or two.

S&P500

We ran a poll on twitter to get a feeling of what you guys are thinking about whether or not the bottom is in. It is interesting to note that with 389 votes, a whopping 88% of you think that markets will keep going lower.

While we don’t know what the future holds, we want to point out the downtrend line marked in green on the SPX chart below. A bullish break of that trendline could be a significant signal of what is to come. So while we are not making any calls on the SPX this week, we really just want to stay aware of that trendline and if there is a bullish break, to act on it.

Shoprite

Despite all the chaos and fear out there, it does seem that some interesting opportunities are emerging. SHP is one such interesting opportunity if you are willing to buy and hold stock, rather than trade for the short-term. We note that it is currently a strong relative outperformer and also that momentum seems to be turning bullish. Further we note that a longer-term downtrend line has been broken. We would like to see the stock clear that 126 day moving average and go on to make a new high before getting involved on a long-term basis.

Sibanye Stillwater

SSW seems to have completed a fibonacci measured move down and looks like it is putting in a bottom. We like the stock for a long-term entry around these levels. Again, this is not really a trade as much as it is an investment. It might take a long time before the world economy returns to normal, although we believe that gold will do well in the short-term and once the world economy is sort-of-back-on-track, that we could see an even stronger push toward a green future which we believe will keep driving demand for PGMs. SSW is well positioned to benefit from both steps in this recovery.

Clicks

CLS is one amazing stock… There is a possibility that it has made a second fake breakout from the resistance level established last year. Panic and fear in global markets could catalyse this stock back down to the target zone indicated in the chart. That said, the company’s sales are likely to go up during the COVID-19 crisis. Therefore this potential short trade is very high risk and a tight stop and small position is recommended. Note also that this is contrary to the setup above on SHP. As is the case with SHP, CLS is starting to show ra bullish shift in momentum and is currently a strong relative outperformer. Perhaps if a short is taken here, it would act as a hedge to the long taken on SHP?

Anglo American

We pointed out a short trade on AGL a short while ago on the weekly chart. We note now that the stock has entered into the support/resistance zone noted on the weekly chart from March 15th game plan. The consolidation it is making within this zone is creating a high probability setup and a break lower would have us enter a trade in accordance with our plan as stipulated on the 15th.

*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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