As much as we’d like to say that the U.S. election is really, really behind us, the truth is that there is still some risk on the table. Trump has not conceded as yet and is trying to take the fight to the courts. As was the case last week, it seems that he is just barking like mad, but has no real bite at this stage. The market doesn’t seem to be taking him too seriously right now, although the potential risk posed by a contested election scenario should not be ignored. Thus, after a strong start to the week, we saw the moves fade and the rest of the week resolve in directionless action on the major indices. Locally our banks popped well, although started pulling back a little in the second half of the week. For the coming week, we see opportunities in Gold miners for high risk-reward long positions at the start of the week. With some luck we’ll see decent pullbacks in the banks for good long setups in the second half of the week.
Offshore trade ideas
The S&P500 seems to be range bound still. The contested U.S. election scenario still poses a fair amount of risk, although we are open to taking long positions should SPY break above current resistance. That said, this could be a great range trade as well with a clear stop loss on the short. We’ll take our lead from how markets open this week. Ultimately though, we have to wait for SPY to generate a trading signal by either closing below $350 (for a short range trade), or above $360 (for a long breakout trade).
The Nasdaq has not gone to retest the highs as the S&P500 (above) has. As is the case with the SPY, we would like for a clear break (or trading signal to be generated) on QQQ before taking an new trades. It has formed a pennant, so it can go either way.
Dow Jones Industrial Average (IYY)
The Dow actually managed to close the week above the key resistance level. This could be a nice speculative long trade with a clear, tight stop loss (use the four day low).
Dow Jones Transportation Average (DTX)
Not the clearest of pictures here, but perhaps we’re overthinking it. The trend is up and the opportunity for a long trade with a tight stop loss is on the table.
Dollar Index (DXY)
This bear flag seems to be working out. The trend is firmly down and we expect to see more USD weakness ahead. One of the primary drivers here is stimulus (brrrrrr) and further weakness here would continue to benefit local banks and retailers.
All trend indicators pointing lower now. In previous posts we’ve shown the weekly chart with a price target of around R13.50. With further USD weakness and a firm trend in place on the USDZAR, we expect more ZAR strength in the weeks to come.
Brent Crude Oil
The trend line we’ve been watching has now been broken. This leaves us in a tricky spot. Although in the longer-term we believe that oil prices will recover (rally) in 2021 and 2022, we’re uncertain if this is in fact the breakout. We’ll be looking for the oil price to find support on the 20 day, 50 day and 200 day moving averages, which all all converging around the trend line support as well. This could be a great opportunity to start building a longer-term long position in oil. Stop loss here would be below $39.32, so still rather tight for now.
It seems that Gold has formed a falling wedge. From a risk-reward perspective there is really no play for us here this week, although there are a few things that are keeping us bullish here.
Positioning: Looking at how the market is positioned in terms of gold holdings, we note that there has hardly been any liquidation of long positions in most major Gold ETFs.
Seasonality: Gold price performance is generally rather strong this time of year. Not the strongest month in the year but bullish, on average, nonetheless.
Perhaps we need one more push higher to get the bulls properly trapped? In the meantime, there might be some long trade opportunities in Gold miners.
VanEck Vectors Gold Miners ETF (GDX)
GDX is not really lined up for a trade here. We’re keeping an eye on it nonetheless as a bullish breakout here would offer a good trade. For now, we wait.
VanEck Vectors Junior Gold Miners ETF (GDXJ)
Junior Gold miners are looking very similar to their bigger kin. We’re waiting for a clear signal here.
Weekly logarithmic chart here on BTC. We have a long thesis on what is happening here, which we do not have the time to go into here today. In essence we are looking for a move back up to the all time high and a breakout above it. Patience is needed though as the Inverse Head and Shoulders setup has now reached target and it would not surprise us to see BTC retest the bottom (blue) trend line. Overall though, we think 2021 is going to be a big year for Bitcoin.
South African trade ideas
Harmony Gold (HAR)
The long trade opportunities in Gold miners is mostly concentrated among the local Gold miners at this stage. One such opportunity is a great long entry here off the 200 day moving average on HAR. The stock is a little oversold and there is some bullish divergence present on the Stochastic and RSI indicators. The long trade here offers a great risk-reward.
Gold Fields (GFI)
A similar high risk-reward setup is present on GFI. This is a good zone to put on long positions with a stop loss below the 200 day moving average.
AngloGold Ashanti (ANG)
We prefer HAR and GFI, although ANG has a very clear stop loss below R350 if you take a long position here.
A few days of pullback would be great to give us another chance at the long here. We can either find support on the breakout level (R38.85) or at the 200 day moving average (rather a long way back down). Either way, we’d like to see a dip so that we can buy it.
Life Healthcare (LHC)
Buying at the bottom of the range offers a clear stop loss and a high risk-reward setup. Targets around the top of the range and the 200 day moving average.
A very similar setup to LHC and a very similar way to play it. Buying off the bottom of the range could offer a great risk-reward trade back to the 200 day moving average.
Growthpoint Properties (GRT)
Buying the dip here will give us a second chance to catch the trend change. We like this for a longer-term position (investment) as well.
Liberty Holdings (LBH)
We would be buyers of the dip here too if given the opportunity. Taking a long position in the lower R60’s would offer an ideal risk-reward.
RMB Holdings (RMH)
Still in a down trend, although it looks like it might be trying to break higher here. If RMH can get above R1.30 it should confirm the up move. We see this stock at R2.00 in coming months.
In the short-term the rally might be a little overdone now. We would like to see the stock pull back to the 200 day moving average, at which point we’ll be interested in taking new long positions.
As is the case above with RMH, we’d like to see FSR pull back and retest both the range breakout and the 200 day moving average before taking new long positions. We believe that the longer-term trends might be changing on the banks and would like to start building some longer-term positions in these stocks and adding on the dips. Of course, if they trade back below their 200 day moving averages we might have to re-evaluate.
Shorting something that is overbought is risky, especially closely held overbought stocks like CPI. The all time high can be an easy stop loss though.
Standard Bank (SBK)
As is the case with the other major banks (excluding CPI), we’d like to see a pull back to retest the breakout and perhaps the 200 day moving average.
Bidvest Group (BVT)
Buying the breakout retest offers a clear stop loss and a good risk-reward.
BAW is stuck near a supply (resistance) zone. The higher probability outcome here is for BAW to retest the range lows around the mid R50’s. We would be interested in picking up longs from those lows, or if there is a decisive break of the R70 level.
*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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