And just like that, markets fell really hard on Thursday. Hard enough to send some shockwaves through the system and cement our bearish bias once more. The public unrest in the U.S. has spread across the world as people march on the streets against racism. Although their cause is honourable, this is creating a real risk of a second wave of COVID-19 breakouts. If there is going to be COVID related fallout from the demonstrations, we should start seeing an uptick in COVID-19 cases around the world in the coming week or two. This will be an interesting metric to watch as it could potentially send half the world back to hard-lockdown. We’ve already seen the state of Florida (in the U.S.) record a record number of new cases last week. Should that trend continue and emerge in other states or even in other countries, we think that it could create a reasonable amount of fear in markets once more.
SPX seems to have broken it’s recent uptrend line rather convincingly. Friday saw the index trying to regain some lost ground, although it did not manage too. We’ve bought some long dated far out the money put options again with the view that the overall market could come down over the next few weeks. In terms of a short-term trading setup, we note that we have 2 of 3 sell signals on the Stochastic oscillator and 1 of 2 sell signals on the MACD, plus a significant break of a trend line. This brings the count to 4 out of 6 confirmations of a short trade. We would like to see the longer-term moving averages (the 200 day and 126 day MA’s) break and for a continuation towards the downside. Given the context of last week’s post, we are aware of the fact that we might currently be suffering from confirmation bias, thus our position is small and has limited risk (the power of options).
Brent Crude Oil
Oil has seen a rather healthy bounce from the lows, although we note that momentum is starting to shift back towards downside. Although our longer-term view is that the oil price is likely to rise over medium-term, we would not be surprised if a second wave of COVID-19, or potentially even an escalation of tensions between the U.S. and China is used as a catalyst to bring and keep the oil price down for another few months. At this stage we believe that it is the intention of OPEC to obliterate the Shale Gas industry in the U.S. and thus we would not be surprised to see oil trade a little lower in the coming weeks. From a technical perspective though, we note 2 of 3 sell signal on the Stochastic oscillator and 1 of 2 sell signals on the MACD.
We marked out the support zone around the 126 and 200 day moving average a few weeks ago as a possible target for the USDZAR (before we got all super-bearish). In terms of the current setup, another day of ZAR weakness would likely break the recent downtrend line and we note 2 of 3 buy signals on the Stochastic oscillator and 1 of 2 buy signals on the MACD. We think it is possible to see the USDZAR test the R18 level again in the coming weeks.
CLS is an interesting one. We note 3 of 3 sell signals on the Stochastic oscillator and 2 of 2 sell signals on the MACD, as well as relative underperformance. This should be a rather good short we think. If this support zone that the stock is currently in breaks, we think that it might to test the lows indicated by the De Mark or Williams point of support at R185.53. We would need the stock to break lower and close below R218.38 before the final signal is given, but so far it is looking good.
Anglo American Platinum
Still no conviction to speak of for AMS, although a few sell signals are starting to trigger. The main thing we are watching here is for a break of that consolidation marked out in the green box. Once that breaks we should have a clear setup that we can get behind. For now the bias is toward the short side, but we need to be a little patient here and wait for confirmation.
*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.