Weekly game plan 12 July 2020

The world is still mostly mad in our view and we still think that there is little point to getting very caught up in the fundamental (or what would usually be considered the ‘logical’) drivers of the market. Luckily our views and beliefs about the world around us has little to do with what is actually happening, and the key to moving forward is to respond appropriately to the external environment, regardless of whatever it is that we might believe. It is how we react to what is actually happening that counts, not what we think should be happening. At some point the market and the economy will be in harmony again, but while it is not we are reminded that our job as traders is now and has always been to simply follow the market. Therefore we look mostly at technical analysis again this week in order to allow the market to lead us without us forcing our bias on it.

S&P500

The chart that we are looking at on the SPX is looking rather bullish. A break of this triangle formation could propel the index back up towards the all time high and perhaps even beyond. From this perspective it looks like the close on Friday was in fact a close above the trigger level to be long.

We saw an interesting chart by @MarcoOlevano (on twitter) that gives a little more insight and colour to the picture. With his permission of course, we’ve recreated it below. The chart is of the SPY ETF (SPDR S&P500 ETF Trust) listed on NYSE.

Looking at the chart there are a number of interesting things that stand out to us.

  1. The golden cross – the 50 day moving average has crossed above the 200 day moving average. This is widely regarded as a sign that the overall longer-term trend is one again bullish, and there is considered a buy signal among longer-term traders and investors.
  2. Testing the downtrend resistance – this is the third time the market is testing the downtrend resistance trendline. A bullish break here is rather likely, given the context of the golden cross, and this could be another buy signal for market participants with a longer-term decision making framework.
  3. The gap has been filled – in general, gap theory states that once the gap has been filled, chances are that the market will continue to trend in the direction of the gap fill. In this specific context, that is higher.

Overall, we are starting to see more and more evidence that the market is likely to trade higher and test the all time highs. Regardless of how unnatural that fees to us, it is not our job to outsmart the market, we must just follow it.

We are therefore comfortable to be long with a stop loss below 2936 on the index and $293 on the SPY ETF.

Brent Crude Oil

The gap has not yet been filled, but once filled it will likely trend in the direction of the gap close. The flat top triangle supports a bullish outlook.

Gold

Gold has broken out of the range that it was stuck in for the longest time. It won’t be in a straight line or within a few days, but it does look like it is on track to make it to the range target.

Goldfields

We added two charts; one without momentum oscillators for a clearer picture of the formation and the break out, and another with momentum oscillators for more context. So far this move looks really good and the formation target appears within reach. Volatility based trailing stops from here on out would probably wise.

Harmony Gold

HAR has gone really far very fast. As shown by the chart, it has gone a lot further than what we’d thought it would when we first identified a trading opportunity on it. That said, there is really no reason to bet against this stock now and enter into a short position. It may come down as fast as it went up, although the risk of sitting short while the stock keeps ripping is just too high for us to consider it a trade that we can take.

MTN

MTN reversed inside the formation that we would like to trade out of. Patience will be needed here. Watch out for a break lower.

Standard Bank

SBK setup from last week seems to be working well. Stronger ZAR certainly helping. Potential inverse head and shoulders in the making.

ABSA Group

ABG downtrend line has broken. It needs to get above the 50 day moving average now in order to get moving.

Nedbank

NED is looking good. R140.00 seems to be in reach.

FirstRand

FSR looks the same as the rest of the banks. Nice and clear upward slanting channel here with a good reversal from the bottom.

Bidcorp

This move looks to have started. We’ve again added two charts; the first with chart without momentum oscillators for a clearer picture of the formation and levels, and the second with momentum oscillators for more context. Full confirmation (and adding to the trade) will happen when the green channel is broken to the downside. Current short position stop loss is just above R295.00.

Clicks

This move is going really well and it appears that our target is very likely to be hit. Once again two charts for clarity and context. Trailing stops from here would be wise.

Truworths

TRU setup did not work out. It could be a short, but there is no clear high probability play here for us.

Imperial Holdings

IPL looks like it could be breaking lower here. Very high probability setup with a really tight stop loss here.

Kumba Iron Ore

KIO has broken its trendline and has been testing it for some time now. Our eyes are on the 50 day moving average (and maybe a head and shoulders formation).

Brait SE

Potential inverse head and shoulders on BAT.

*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.

Advisory services

We’re happy to announce that we now have a registered tax practitioner as a part of our team. Well, he’s been with us for a few months already, mostly doing tax clearance certificates for crypto arbitrage traders, financial emigration for individuals moving overseas, as well as, the odd intercompany loan agreement for some companies in the startup space. Thing are off to a good start in that space and we recently posted the first of what will be a monthly blog under Tax insights. We hope that the information contained in the Tax toolkit for 2020 post will help both traders and investors with more efficiently compiling and submitting their annual tax returns. Of course, if you would like for us to help you with your tax affairs, you are welcome to contact us.

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