Things are starting to get a little wild out there as we approach the U.S. elections. Most of the charts that we look at this week are or larger market indices. Volatility is likely to remain elevated for the rest of the year. We’re not quite ready to start buying the dip just yet, nor are we sure that we’ve even really seen the dip yet. A bit of a zoomed-out macro view this week.
Both out support levels have been hit. Volatility is higher than usual as evidenced by the large daily ranges on major indices. We are still of the view that the S&P500 should come down to test the 200 day moving average (and the downtrend line).
Our view here is similar to that on the S&P500. We note a range here though, that if broken to the upside could act as a trigger to make us close short trades. A break lower, of course, would continue to play in our favour. We still expect the 200 day moving average to be tested.
Dow Jones Industrial Average (IYY)
Not the worlds biggest head and shoulders formation, but it targets just below the 200 day moving average. This actually offers a great risk-reward for a short trade. Above the neckline and the trade is off though.
Philadelphia Semiconductor Index (SOX)
This chart could well prove to be a bit of a leading indicator for the tech sector at large. Note that this is a flat bottom triangle. Perceived bearish in general, although bilateral in nature. A bullish break here would likely see us close shorts on QQQ.
Dow Jones Transportation Index (DTX)
We don’t really have too many comments here. This chart looks fairly constructive to us at this stage. We’ll keep an eye on the range formed over the last 5 trading days for a directional break. Other than that, there is no real setup of clear picture here for us.
Dollar Index (DXY)
The consolidation has finally broken and a stronger Dollar is on the cards. Ironically, traders added more short DXY positions over the last week. This heightens the risk of a short squeeze and an even stronger Dollar. This will continue putting pressure on precious metals and commodities (and also the Rand).
The fake breakout to Rand strength was short lived. The DXY chart above overrules the USDZAR setup as EM currencies will take their lead from the Dollar. For now it seems that the USDZAR is back in the range. Further bullishness on the DXY will continue to put pressure on the Rand.
We’ve been experimenting with different ways of looking at the VIX. Right now the only useful information this chart is communicating is that across all terms, volatility is is generally higher that usual. This is likely for a few reasons; uncertainties around a potentially contested U.S. election and the unprecedented events caused by COVID-19 earlier this year. In order for markets to really start accelerating back down, we’d need to see short-term VIX comfortably above long-term VIX. Let’s see how this plays out. *Note that this chart takes into account the absolute values for the various terms of the VIX futures contract and not their relative change compared to each other.
AngloGold Ashanti (AU) – U.S. listing
Given the DXY chart above, it would seem probable that AU trades around the 200 day moving average in the coming week.
Old Mutual (OMU)
Four relatively bullish looking individual candles seems could not stop the power of the down trend here. R9.24 is the next support level. We’ve taken a small against the trend long position here, although it’s not feeling very comfortable at the moment.
Sibanye Stillwater (SSW) – S.A. listing
Key support is broken here. Once again, the DXY above dictates all in this sector right now. Key support levels are around R42, R38 and R32 (very roughly).
Exxaro Resources (EXX)
Simple range break short trade with a decent risk-reward.
Dis-chem Pharmacies (DCP)
One (down) trend to rule them all…
*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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