Weekly game plan 12 April 2020

COVID-19 is wreaking havoc in first world countries, while surprisingly South Africa seems to be coping with it much better than most. The lockdown extension might have broken the hearts of many South Africans, but we know that it has saved the lives of countless numbers of our kin. Besides, sitting at home and focusing on what is most important in our lives can only be beneficial. Family, friends and of course, taking care of ourselves… if we use this time wisely we could come out much stronger and much wiser. Our economy will take a hit, yes. Although, South Africans are resilient beyond even our own understanding and we have no doubt that we will bounce back, more enthusiastic and optimistic than ever before!

As for markets, whether or not the worst is over, only time will tell. From a momentum perspective though, it does seem like there is some strength coming into the market once more.

S&P500

While in the Market update post on the International outlook blog we cautioned that the market might be due for a pullback and started looking at building a short position by making use of a bearish put spread, we still acknowledge that the probability of the SPX trading up to test the 3000 level is rather high. We have three of five buy signals here in accordance with our swing trading strategy, which does give us reason to be long, although is not enough evidence for us to be convinced that the market will go on to make new highs just yet. For now our expectation is that the SPX might trade up to test the 126 day moving average, which coincides with the 3000 level.

USDZAR

We note on the USDZAR that a number of triggers are firing to indicate that the bullish momentum has waned significantly. We also note that the worst case scenario has now played out… South Africa has been downgraded to sub-investment grade. Thus, we are starting to form the view that, at least from an excluding-COVID-19 perspective, the worst might be over for the Rand. We note that both momentum indicators have triggered sell signals, as well as a trendline break. Our expectation is that the USDZAR will continue to strengthen during the week ahead and perhaps even trade back down to support at R16.31 in the weeks and months to come.

ABSA Group

This is a setup that we are seeing all over the market at the moment. Rounding bottom chart pattern breaking higher, with building bullish momentum. We would expect that ABG trades up to the 126 day moving average (or at least close to is). Not though that this is an ‘against the trend’ trade and thus we’d advise half normal position sizing (half risk) on any long positions taken here.

AECI

Similar to the setup above, we note that here we have a flat top triangle formation with building bullish momentum. We’d be looking to trade a bullish break of this formation with a target around the previous support level (now resistance) around the R87.90 region. Again, this would be trading against the trend an thus halving position size would likely be wise. AFE is also not the most liquid of stocks, thus smaller positions are generally advisable for this stock, even more so when trading against the trend.

Astral Foods

Probably our most preferred setup of the week. ARL is trading above its 126 day moving average and looks like it might break out of a rather large bull flag. We also note that we five out of five buy signals here, with the last signal needed before entering the trade being a break of the bull flag formation. Ironically, this is the only trade we are looking at this week that is not against the trend. That said, ARL is not as liquid as a Top 40 stock and thus wider stops are advised.

Growthpoint

Once more, an against the trend setup. Also, notably, a relative underperformer. Nonetheless, there is sufficient evidence here for us to be willing to enter a long position with an eye on that moving average as a possible target.

*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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