Weekly game plan 23 August 2020

Building on some of the thoughts we shared in our blog post last week (U.S. commentary), we want to start off the weekly game plan by urging caution. Market breadth is a very reliable indicator over the longer-term and if you have not read the blog post we’re referring too, we strongly recommend that you do. That said, there is a strange balancing act that we must now perform. We need to remain ‘trend followers’ and keep dancing while the music is playing, but we must acknowledge the possibility that the carpet can be swept out from under us at any minute. Most importantly, we need to be ready to jump when the carpet is pulled so that we don’t fall flat on our faces… but also not spend the entire party just jumping up and down in the middle of where everyone else is trying to have a good time. It is best then to keep a flexible ‘everything is temporary’ mindset, and be open and ready to change our views when presented with evidence contrary to what we might think we know. This is just one of those things we need if we hope to trade with some measure of success, but that is perhaps a philosophical tangent that we won’t be exploring right now. The point of the big long disclaimer is that we have to remember, particularly when it comes to short-term trading, we must be able to simultaneously believe two things. Evidence is clear that the market has gone too far, but right in this very moment it’s still going. We have to play to both scenarios.

S&P500

This setup has played out really well and truth be told, the trend looks strong here. Technically it closed above the previous all time record high level and has triggered another long position on this index (ETF). This is the part where we have to believe two things at a time. On the one side we have to take the flashing warning lights very seriously, while on the other we need to stick to the rules that helps us follow the trend. Therefore, although this is a clear breakout to new highs, we want to caution traders to not take too much gearing here. Managing your exposure is very important . Yes, the market could rip higher for another year or two (or ten) from here, but there are valid fundamental and technical reasons to be careful. To be clear; being or taking long positions here is not the problem, but being over-geared at the top of the market will be.

AngloGold Ashanti

Our speculative long position was stopped out here when the stock broke the lows (and subsequently rebounded) on Friday. For now we are happy to sit on the sidelines, but we do note the potential for a short trade here. Obviously it is not wise to trade against a strong trend, but we note that both the Stochastic and MACD have given their full range of sell signals and that the stock has turned to a trending underperformer on a relative basis. These are not things that make us feel very comfortable with the long.

Sibanye Stillwater

It’s ironic how we were looking at this trade on Friday and while we were on the call the stock bounced up from that buy zone. Perhaps a great opportunity to have missed, but also perhaps a potential topping pattern in play. We’re not going to chase this stock, but rather wait for another setup. One of the scenarios we are considering is pairing a ANG long with an SSW short, but we’re not quite sure of that idea and will be happy to miss out, rather than lose.

The Foschini Group

Another very close one, but it closed above the resistance level and thus triggers a long trade on Monday.

Glencore

We’ve been tracking a long trade on GLN for some time now, although it seems that the bullish momentum has waned and perhaps a short is back on the cards. We note a close below the 50 day moving average, and below a significant support zone, and well outside be bear flag / upward slanting channel.

Netcare

We see two scenarios here;
– The first is a long trade off the support level with a really tight stop loss and thus a great risk-reward ratio. The trade target would be the upper resistance (downward sloping trendline) with a stop loss just below the horizontal support. With such a high risk-reward ratio, it would warrant stopping and swinging short in the even that the se second scenario plays out.
– The second scenario is to wait for a break below the horizontal support and trade short (with the trend). The stop loss could be placed just above the recent highs (and just above the 50 day moving average) with a formation target some R5 lower.

Richemont

CFR is range bound. Worth keeping an eye on we think.

Discovery

Setup is working well, trailing stop loss recommended.

Exxaro

There are a few different ways to look at EXX, but our attention is on the flat top triangle. There is still no confirmation that the trade has triggered, but we think that this is a setup worth keeping an eye on. Remember though that triangle formations, in any form, are bilateral formation that can break either higher or lower. In that sense, the triangle formations only really give us two things; a trigger to enter a directional trade, and a measured trade target and stop loss.

Imperial Holdings

It’s against the trend, so we’re not willing to allocate a full position to the long. Nonetheless, the setup is looking rather good as we note a higher low, giving a clear level for a stop loss.

*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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