It’s no secret that this is probably one the most hated stock market rallies of all time. In fact, that is probably pretty accurate for the entire bull market since 2009, really. Now however, it is even worse. COVID-19 is spreading faster than ever in the U.S. and has already wrecked havoc on economies the world over. We don’t see how things return to normal any time soon. Yes, demand from China might pick up again for commodities and oil, but the U.S. is probably going to go back to being on hard lockdown for another few weeks. It’s hard to make a bullish case for stocks in this environment. The thing is, the market usually goes against popular opinion and for the most part it has… hence the strong bounce. At some point though the weak hands will capitulate and the market will finally move to fair value. The question is when? Another good question is, is our idea of what fair value is anywhere near what it really is? In truth, we don’t really know how things will turn out. All we can do is trade the setups that we see and make sure that we manage risk accordingly.
The longer-term moving averages are still holding, although for the first time in a while the SPX managed to close the week very near the lows. Further, the range that we have been tracking on the 1 hour chart has broken, been re-tested and broken lower again. In terms of the daily time frame, we see bearish momentum continuing to build as time goes by. This leads us to believe that if the 2960 level (previous range resistance) breaks, we could finally see a larger scale market pull back.
The USDZAR we think at this stage is largely going to be driven by external factors. Well, of course if there is some sort of local shock, the picture might change, but for the most part we think that most of the local bad news is being accounted for at this stage. Thus, we think that the fate of the ZAR is currently tied to the fate of the SPX. Should we see a larger scale pull back, the hammer formation on the weekly chart below could propel us into weaker territory. Without a major external driver or shock, we’d expect the USDZAR pair to stay rather flat. Currently we too many mixed signals on both the daily and weekly charts for us to be confident about any potential setups there are to be had.
The range that Gold has been trading in over the last few months has finally broken and the Gold price managed to close the week above the resistance level. This triggers a long trade with a range break out target at $1870.
Anglo American Platinum
We’ve been tracking AMS, looking for a short trade. As it turns out, the range we had been looking at as our potential trigger has broken our higher. This takes our short trade off the table, but we are not willing to chase a long either. For now we see too many sell signals for us to be able to back a bullish breakout. Perhaps we are wrong, but rather wrong and on the sidelines than in the wrong trade.
Another stock we have been following for some time that is finally playing in accordance with our play book. CLS has been supported in that support zone for a number of weeks now and has eventually broken lower. We expect CLS to trade to the support zone in the coming weeks.
This is an interesting setup for us. Firstly, we are seeing some early signs of a potential bearish shift in momentum. We are pre-empting a bearish cross of the MACD line and its signal line, but should that happen, it would be the first confirmation (of two) on the MACD. The Stochastic Oscillator has already given one confirmation from its signal line crossing over the stochastic line. A break below the 80 level would give a second confirmation (of three) on that indicator. Further, marked in the pink circle, we note that the candle formations in that zone indicate that rather a lot of supply is available in the market. Moreover, this is a long-term trend following resistance/adding/selling zone as there has both been a bearish crossover of the 126 day and 200 day moving averages and price is now finding resistance in the zone between those moving averages while they are in bearish configuration. A break of that blue support line, we think, could coincide with further momentum confirmations on the oscillators. This setup feels like an A+ play to us and is thus one that we will be watching very carefully.
*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.