So it’s finally Santa rally time, although things are starting to look a little stretched in our view. Last week did not at all go as expected, which is ironic as we started off last week by saying this year has been testament to the true unpredictable nature of markets. The week that lies ahead though is usually the ‘Santa rally’ week, so perhaps our caution and maybe even slight bearishness might again be off the mark. Nonetheless there are some good trading setups out there. Furthermore, we thought that this week we would share our 2021 roadmap for Bitcoin. Next year, we think, is going to be wild!
Offshore trade ideas
We have shared this chart a few times over the last year or so. Here we track BTC on a logarithmic scale in order to ‘normalise’ the price movements by showing them in percentage terms, rather than absolute Dollar terms. Using a logarithmic scale helps to read large price moves and the subsequent long-term price patterns more accurately. The first thing we notice is that the flat top triangle has broken higher. A traditional measure and target projection for the flat top triangle, in percentage terms, calls for a 533% rally, or $124,484.78 price target. We think that given the propensity for the general public to absolutely lose their minds and chase the bubble, that BTC could reach around the $200,000 mark by this time next year. That’s a fairly bold call. Also, it’s a call we’d made a long time ago (in a series of Finweek articles, contact us if you would like copies of them) and thus far has been on point. We note that in 2017, when last BTC went parabolic, the area between the 10 week and 20 week moving average was a great ‘buying zone’. We also note that a move below the 20 week moving average would have been a great trailing stop loss. Thus our 2021 roadmap for Bitcoin is to buy whenever BTC pulls back into this ‘buying zone’ and to trail stop out when the 20 week moving average is broken on a candle close basis. Lastly, we would love to see a pull back to the support level ($19,666 – or there about) for a buying opportunity, as that would likely put BTC in the ‘buying zone’ and on support at the same time, which to us, would be a great time to buy.
From momentum perspective, this breakout is not going very well. It is starting to feel like if there is no new bullish catalyst, like stimulus news or something similar, that this market might pull back some. There are fresh new lockdowns and a new strain of COVID to fuel a bit of fear in the near-term as well. For now, we think it best to scale back on the longs and sit and wait for a better setup. Perhaps some SPY puts (put option) might be a decent play here?
We note bearish divergence between price and the stochastic oscillator, as well as a bearish cross of the MACD and its signal line. Potential downside targets could be the 50 day moving average (which coincides with the bottom of the channel), or even the 200 day moving average.
Russell 2000 (IWM)
We know that stochastic oscillators can remain overbought or oversold for long periods of time without it really being a signal of an imminent turnaround. That said, the stochastic on IWM has been floating around overbought territory for over a month now. Should it turn down and generate a sell signal here, it will add to a growing body of evidence that we want to be short. First, the upper end of the channel is coming up and will likely put up a bit of resistance. Second, the MACD has generated a sell signal. Third, there is divergence between the stochastic oscillator and price. Once you add in a sell signal (if generated) on the stochastic, things are looking fairly good for a pull back.
Brent Crude Oil
Perhaps not as bullish as the 2021 roadmap for Bitcoin, but our base case for Brent Crude Oil is that we see at least $60 a barrel in 2021. In the short-term though, we note that the ‘second strain + second wave + second round of global lockdowns’ narrative is likely to put some pressure on. We also note that both the stochastic oscillator and the MACD have generate sell signals. We think it likely that Oil will find support at $46.50-ish.
Gold is still trading in its large bull flag. We note that it held above the 50 day moving average at the end of last week. As long as Gold stays above $1850, we think this bull flag breaks higher.
Dollar Index (DXY)
DXY has not yet reached out target of 89, and the US Fed is basically sitting on the print button at this stage, so our base expectation is still for a weaker USD (and stronger ‘everything else’). That said, we are seeing some early signs of a bounce. Momentum is shifting toward bullish and a symmetrical triangle / pennant has formed. Depending on which way it breaks when markets open tomorrow, we’d expect to either see 92 being tested (in a global risk-off scenario) or 89 to be tagged (in a global risk-on scenario).
We don’t have too much commentary on the USDZAR right now. Our target was reached and we are waiting for another setup. As usual, USDZAR will take its lead from DXY.
Hammerson PLC (HMSO)
This is a tricky one. The chart on the left is from MetaStock, which has adjusted the share price to reflect the recent share splits. We see an inverse head and shoulders targeting R8.00 (when adjusted back to ZAR). The chart on the right though is from TradingView, which seemingly has not made the same adjustments. There we see a flat top triangle, similarly targeting around the R8.00 level (when adjusted back to ZAR). This stock is one that we thing is going to make a great recovery in 2021 now that Brexit is out the way and eventually life returns to normal after COVID.
South African trade ideas
This setup is still looking really good to us. The stop loss is now the 50 day moving average, with a target around R48.00.
This consolidation has still not broken. Above R60.00 is a buy, although a selloff in the US might ruin this party.
It worries us that NED has not made a new high in its recent rally. Perhaps a global risk-off theme could see this consolidation break lower? Current stop loss is below R120.00.
Gold Fields (GFI)
GFI has been trading poorly, but it is still not a sell. It has made a death cross… but some risk-off might push it up out of the consolidation.
British American Tobacco (BTI)
BTI is looking good for a move back up towards the 200 day moving average. Stop loss below the swing lows.
The same narrative as with GFI, ANG is looking like it could do well in a risk-off scenario.
Absa Group (ABG)
Looking at a weekly chart this week, we note that the R135.80 level and its wall of sellers is coming! Perhaps time to take some off.
*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.
We’ve added a Glossary
We’ve added a Glossary of stock market terms with over 900 words, phrases and terms in it! Feel free to bookmark the glossary and use it as a reference whenever you come across a word that you might not know. Also, there are many, many words that are not there. So if we have missed one, please let us know and we will gladly update the glossary to include it.
The Santa rally might not come, but you can still give yourself the gift of lower brokerage fees!
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Have a look at our accounts on the HCA trading page, open your account and start 2021 off on the right foot!