Weekly game plan 18 October 2020

Overall markets are feeling a little ‘in the middle of nowhere’ at this stage and thus our weekly game plan is to mostly be patient and wait for better setups. We look at some of the major U.S. indices and note that there are no really good setups to be had at this stage, although Gold, Sliver and Oil might be setting up for some decent trades. On the local front, we’re probably complaining too loudly about low volumes, but there seems to be a select few good setups.

S&P500 (SPY)

The Inverse Head and Shoulders (IHS) seems to have played out and the market failed to make a new high. We’re keeping an eye on that key support level at $339.05 (around 3400 on the index). We think that could be significant support and would be worried about the sustainability of the current tertiary uptrend if that level is broken. As will be shown in some of the other major U.S. index charts below, there is a possible bull flag in the very short-term too. Right now we do not see any high probability setups on the daily time frame and thus have not new plays here. We would be open to adding to a long position off that key support level, or on a break to new highs.

Nasdaq (QQQ)

A very similar picture to that above, so much of the commentary and thoughts are on the same track. Here we can see that small bull flag formation though. Note that on the daily time frame that formation might be challenging to trade and looking at a 1 hour chart for entries, targets and stops is advised.

Dow Jones Industrial Average (IYY)

Another U.S. index, another chart that looks pretty much the same as the one before. All the same applies here as above.

Philadelphia Semiconductor Index (SOX)

The gap made on Friday 9 October 2020 has not been completely filled, thus one of two things can be happening here. First, it could be a breakaway gap – a bullish break of the last five days’ worth of consolidation would confirm that. Second, it could be an exhaustion gap – closing the gap from the 9th could double confirm as that would be a break of the consolidation as well.

Right now, there is no game here for us as there is not a high enough probability setup for us to act on. We think that SOX can be seen as a leading indicator to QQQ, which in turn leads SPY. The new high over the last period while other indices failed to make new highs is encouraging for the bulls overall, but we need to pay attention to what happens here.

Dow Jones Transportation Index (DTX)

This chart looks a little more encouraging as the support level seems a little more robust. From a trend following perspective, a good long entry would be in the area between the 20 and 50 moving averages, so there is no real setup here now.

Dollar Index (DXY)

We look at two charts here. The first is the daily timeframe showing our original rectangle, IHS and potential trend change. There is a nice 3 bar bullish reversal pattern with lows right underneath the 20 dma. This could prove to be significant in weeks to come. The second chart is a weekly chart in which we note a potential bear flag. Our thinking is that perhaps, instead of seeing a bottom and reversal, we could perhaps see a few more weeks of consolidation in this channel before an eventual move lower down. Thus in the short-term, perhaps a push higher towards the 20 week moving average (bullish) before a break of the bear flag consolidation (on the weekly) and then a move lower. Much will be dictated by the outcome of the U.S. election though.

USDZAR

We’re looking at a weekly chart here. We see key support around the 50 week moving average. A break of this support could lead to a move toward the 200 week moving average.

Brent Crude Oil

We’ve added another resistance trend line, this time using the candle wicks. It’s created a small zone in which the market has traded over the last week. Our thinking is that a break higher, above the dotted trend line could lead to a longer-term bullish trend. Overall though, Oil is consolidating between $38.30 and $44. We’re not taking any trades until either one of those levels are broken on a daily time frame.

Gold

The makings of a bear flag with the potential to retest the 200 day moving average around $1760 / $1800.

VanEck Vectors Gold Miners ETF (GDX)

2 hour chart of GDX. Looking like a bearish reversal after it failed to reach the top of the channel. Note that this is actually a small wedge (might not be so easy to see on the chart). A bearish break of Gold (above) or a strong move toward Dollar strength could add fuel to the bearish fire here.

Silver

Looking very similar to Gold in terms of a bear flag setup. Strong risk on sentiment, or lack of further stimulus could be a catalyst here for a weaker move in both Silver and Gold.

Direxion Daily Small Cap Bear 3X ETF (TZA)

The 1 hour chart is showing signs of a nice rounding bottom and potential bullish break. Note that this is a 3 times leveraged inverse ETF of the Russell 200 Index, thus a bearish move in the Russell 2000 index would be a 3 times multiplied bullish move on TZA.

Anheuser Busch Inbev (ANH)

The breakout that was doubted, that ended up happening, has disappointed…. we’re watching R885 for support and a potential long entry, although our confidence here is low.

Aspen Pharmacare (APN)

The consolidation is broken and the R100 level comes back into play as a target for this trade. Once the R100 level is tested, it would have completed a multi-month move back to the bottom of a large channel formation.

FirstRand (FSR)

FSR is approaching support. Although R36.90 (R37) seems like a solid support level to take long positions off, stay open to the possibility that it could break this first level and only bounce off R33.83 (R34).

Redefine Properties (RDF)

Very high risk-reward on offer here for the long trade. Stop loss below R2, target R3.60, then R4.50.

Sasol (SOL)

Another set of hammers fairly close to a key support. It could well be a long here with a stop loss below R99 and a target at R123, then R140. Below R99 spells trouble.

Telkom (TKG)

Price holding well above all moving averages now. Stop loss below R25, targets shown on chart.

Discovery (DSY)

The trend seems to be broken here. Door is open for a retest of the 200 day moving average and a short trade. Stop loss above R125 with a target of R107.

*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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