Over the last few weeks the tone of the Weekly game plan and the trade ideas coming out of the International outlook blogs have become somewhat more bearish. Whether or not we are completely missing the mark here is still to be seen, however we are becoming more and more concerned about the sustainability of the current developed market (particularly U.S.) rally.
Oh the most hated chart on the market… the rally that nobody likes. Things really are confusing at this stage of the game. We saw a very clean break to new highs over the last week, as well as a rather nice build up of bullish momentum. If you look at only price and momentum, there really is no reason to be short this market.
That is not the entire story though. When looking at market breadth data (by McClellan and Yardeni) we start to see a worrying picture. A dwindling number of shares are participating in the rally and tech stocks are becoming a worryingly large proportion of the index. While these are not clear signals that are actionable when some trigger is generated, these are signs of distress and extreme concentration risk in market indices. History is a good teacher and we have seen similar market conditions before.
We think that it is likely that the market continues to trade higher in the immediate to short-term, although we caution very strongly against taking on gearing at this stage. Strategically we are allocating and keeping a larger proportion of cash and making sure that we do not get caught with geared long positions.
We see some support around the 200 day moving average on the USDZAR chart and note that the pair is currently trading in a rather large range. A move back to the highs of the range would likely put pressure on our banking sector while rewarding the resources counters. For for the most part though, we think that the fate of the Rand will largely be determined by the Dollar Index (DXY). We note that the DXY has been consolidating for some time now. We await a directional break of that range for directional guidance on the Rand and other emerging market currencies.
A few weeks ago we looked at the long on a break of the 200 day moving average and the potential setup of a golden cross. Our thinking was that we could see a longer-term trend change. Strictly speaking, in the medium to longer-term that view is unchanged, although in the shorter-term there are some concerns. When GLN broke the 200 day moving average we saw a strong move to the R44 level, although it has since faded and broken below the 50 day moving average and out of a rising channel. This puts us in a difficult position as it is highly likely that we see the 50 day and 200 day moving averages crossover, which generates a medium to longer-term buy signal, while confirming a bear flag and failing to break above a significant resistance zone. We have mixed signals on the momentum oscillators as well. Our bias shifts toward the short side for this stock, although will not enter into any new positions until the picture becomes more clear.
WHL is rather range bound. Initially we were looking for a long on a break of the upper resistance level, although the stock has now once again settled firmly into the range and we remain flexible to trade in either direction once the range break has occurred. The second chart is a bit messy, but we note that from a momentum perspective the stock looks somewhat weak. The MACD is turning down and heading into negative territory while the stochastic has provided almost its entire range of sell signals. Relative strength indicates that the stock has been a trending underpermer for the last year as well. The configuration of the momentum indicators slants our bias toward the short side and the third chart shows our current thinking. We think it most probable for WHL to break the immediate range support and trade down towards the horizontal support formed during the lows of March 2020. This offers a decent risk-reward as well.
We’ve been tracking a potential inverse head and shoulders formation on TBS. There are currently no confirmations for this formation or trade, although we will continue to watch the stock to see how things develop here.
Momentum wise, OMU is triggering a number of sell signals. Confirmation would be a bearish break from this wedge / triangle formation.
The Foschini Group
TFG triggered a long trade for us which we entered on Monday. Not really much for us to do now other than wait for the trade to either hit target or stop loss.
There are a few things happening here. Golden cross, inverse head and shoulders and a flat top triangle. We entered into a long position on the bullish break of that flat top triangle, although so far the trade is not working out. Our stop loss is below the triangle support.
A rather ugly looking bearish engulfing candle on the daily chart for DSY. ATRx2 trailing stop loss is currently at R122.66.
Another bearish engulfing candle on the daily chart. This trade is currently floating around break-even and our stop stays in place just below the recent lows.
*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.