Finally the US election is behind us! We’ll still see how far Trump goes to contest the election outcome, but so far it seems the the courts are not entertaining the idea. So ok, Biden wins, what now? Things get a little tricky from here too, to be honest. There are some videos going around that are being called ‘proof of voter fraud’ and no doubt Trump will scream and shout about it, but right now we can’t tell how seriously the market or the courts will take him. From here though, it is reasonable to expect that more COVID related stimulus will done and the Dollar should keep weakening on that. This likely leads to more ZAR strength and might direct some investment flows into emerging markets.
That said, the world is starting to push back on lockdowns. This could bring some risk-off sentiment to the market and might just answer the “Biden wins, what now?”. Maybe we just move on from the US elections and start to focus on growing anti-lockdown unrest around the globe?
Offshore trade ideas
SPY looks fairly range bound at the moment (as do most US indices). For now we have to wait for this range to break before we can discern a high probability trade setup. The gut feeling is that we trade higher on the back of some optimism for the Biden victory as well as hopes of further stimulus. Patience is still the name of the game here I think as we need to wait for a confirmed break out from this range.
A very similar picture to the S&P500. One thing that is concerning of the Nasdaq (QQQ) chart is that those two candles are looking a little lonely up there, above a gap. The most recent one is in fact a hanging man candle formation, which tends to be bearish. The bias would be short here, although how markets will react on Monday is still to be seen. This chart is part of the reason we can’t be overly optimistic about the week ahead. The potential for this to be an island reversal is also there. As mentioned earlier, the gut feel is that we trade higher, but patience is the name of the game.
Philadelphia Semiconductor Index (SOX)
I’ve mentioned before that I consider the SOX index as a leading index to the Nasdaq. SOX managed to break to new highs on what looks like a breakaway gap at stage. Further upside here, along with the S&P500 and Nasdaq breaking to new highs would bode very well for our local market and likely the ZAR.
Brent crude oil
Brent just can’t break this down trend. I’ve mentioned a few times that seasonality is a big factor here and that November usually proves to be the weakest month for oil. Price has now made a series of lower lows and lower highs, so the trend is definitely down. The blue trend lines are key here I think. Provided we don’t break those trend lines, lower prices in the short-term is the most probable outcome here. Factors adding to oil weakness now include European lockdowns (and the impact that will have on demand for oil) as well as the possibility of further lockdown measures in the US on the back of the Biden wi, (which will also negatively impact demand for oil), and Russia not cutting production in accordance with OPEC+ guidelines.
Dollar index (DXY)
This flag formation is starting to look like a winner. The only support left here is the lows made in August and September. Weaker USD and stronger ZAR seems to be the sure-bet outcome here now.
Once again looking at a weekly chart on the USDZAR. That R14.50 level is looking like it’s going to be hit rather easily at this stage. It would not surprise me if we overshoot the R14.50 level (200 week moving average) and head back towards the bottom of the range in which the USDZAR traded during 2018 and 2019.
Inverse Head and Shoulders target reached. Now we need to wait for another setup, or just HODL.
South African trade ideas
Nedbank is looking fairly solid at this stage. If it can get above the 200 day moving average (and break out of the range), we could see a nice run here. A stronger ZAR will be a powerful backwind for this long trade.
Most banks are looking very similar, all seeming to have formed a solid base and all trying to change their trends. ABG is no different and that 200 day moving average is key.
DSY bounced off the 200 day moving average with gusto! This could be a small rising wedge with overhead resistance around R120… although the stronger ZAR narrative might negate any short trade ideas on financials in general. That said, this does look like a very high risk-reward setup that is forming and one to watch in the coming week.
Growthpoint Properties (GRT)
GRT just can’t seem to break this down trend. This is a stock that is starting to look very attractive to those seeking both value and dividends. I would still like to see that downtrend breaking, although some in our community and team are starting to buy the dips here. From a long-term equity investment perspective, this stock is a good addition to the portfolio. So perhaps the ‘trading hat’ needs to be put aside and exchanged for the ‘investing hat’?
Redefine Properties (RDF)
Well, RDF make a new low below the R2 level, so the reversal off the bottom (blue) channel line is off the table. There is a small falling wedge forming, and as is the case with GRT, this stock is starting to become very attractive for long-term investment. Any short-term trades can only be considered once this small wedge (market with the black dotted line) breaks.
Given the weaker Oil, stronger ZAR narrative, SOL looks like it may go break that R74.50 support level. I might be getting ahead of myself here a bit though. Let’s see how the stock behaves when it gets back to that support level first. Some are starting to look for an Inverse Head and Shoulders (IHS) pattern here on lower time frames, although nothing is confirmed yet. A move down to the R74.50 level would negate the IHS setup anyway. For now, short bias to support and patience.
TKG finally broke the range on the back of earnings. Perhaps this will lead other telecommunications stocks higher?
VOD is still in this range. I’m starting to get worried that it won’t break higher. The potential downside here is all the way down to R105. For now though, no signal. It might even be better to remove this from the watchlist for a few weeks, just to avoid being caught out.
A hanging man and a dragonfly doji candle formation, one after the other… both under the short-term moving averages, while they are in bearish configuration. Feels like a move back to R300 is rather probable.
Kumba Iron Ore (KIO)
I showed this KIO Head and Shoulders chart last week. Although it looked like it might have broken, it ended up making a hammer candle formation and had a solid bounce. This Head and Shoulders formation is not off the table yet though as price will need to trade above the right shoulder to negate it. There is also some weakness in the Iron Ore price. This is still a setup worth keeping an eye on.
What is gold going to do in the era of Biden? A little tricky to call actually. GFI gave a doji candle on Friday, in the selling zone (for short trades on a trend following strategy). The bias here is that we see it trade down to the 200 day moving average, but I am staying open to the idea that stimulus hopes pushes gold enough to negate the strong ZAR impact and get GFI above the R205 level. For now though, the highest probability trade here is a short to R160.
Impala Platinum (IMP)
IMP almost back at the top of the range. It could be a nice short around the R177 level. All the 99’s buying is also done now (odd lot takeout offer). Normal range trade rules apply. Stay flexible.
TRU looking pretty solid here. Risk-on, flows into emerging markets and ZAR strength are all going to help push this stock. I like the potential for a long-term trend change here above the 200 day moving average.
British American Tobacco (BTI)
Mentioned last week for the dividend. Looking like that R495 – R500 support will be tested. Might be worth picking it up there if it gives a chance.
*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.
Biden wins, what now?
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