Stimulus cheques are in the mail

Once again the U.S. Fed has tossed the kitchen sink across the room in a bid to keep the music going. We’re still to see how markets react, but from what we’ve seen so far, once the stimulus cheques are in the mail, stonks only go up!

Bigger picture
S&P500 (SPY)

The power of the bounce! SPY held the channel line the week before last, and last week it bounced rather well toward the $400 level. I expect that the SPY will test the dashed blue (upper rising wedge) resistance. Given that stimulus cheques are in the mail, perhaps we trade back to the upper end of the rising channel (aka. much higher than $400)?

stimulus cheques are in the mail
Russell 2000 (IWM)

Fresh new highs for small caps in the U.S. Overall this index is looking very strong. After we saw hammer city last week, most indices bounced well and are on track to keep trending higher.

stimulus cheques are in the mail
Nasdaq (QQQ)

A rising tide lifts all ships, much the same way a stimulus cheque lifts all stocks (and risk assets in general). QQQ though, has broken below its 50 day moving average and there has been some negative news flow around big tech. Some headwinds from the Chinese state on asian tech and some rhetoric around breaking up the bigger tech companies in the U.S. Although markets are likely to come out blocks strong and bullish this week, watch out for surprise negative news around tech stocks. This could be a nice short setup for those able to easily stick to stop losses. Be aware though, the MACD might be setting up for a buy. So if you do trade it on the short side, keep your stop relatively tight.

stimulus cheques are in the mail
Dollar Index (DXY)

DXY has formed a short-term uptrend, which could turn out to be a bear flag. Given that stimulus cheques are in the mail, we could see the bottom fall out from under the USD and subsequently this bear flag play out. Initially, following the breakout from the falling wedge, I’d expected a move back to the 200 day moving average. Although the DXY did not make it all the way up to the 200 day moving average, it did get fairly close. From here, my bias is once again towards USD weakness.

stimulus cheques are in the mail
Volatility Index (VIX)

Do we finally see the VIX close below 20 this week? A break below 20 would signal good things for equity markets.

stimulus cheques are in the mail
Brent Crude Oil

Brent crude oil has had a great run. It could start slowing down around these resistance levels a little, although in the medium-to-longer-term, higher oil (and energy) prices seem very robust. With supply still tight and demand picking up, we’re likely not many months away from reaching pre-pandemic oil prices.

Gold

Gold bounced off a major support level at $1680. Momentum is turning bullish once more and it looks like we could see a bounce to the 50 day moving average. A possible driver behind the bounce here would be that stimulus cheques are in the mail… So in a sense, the same driver would be in charge here as with the DXY. Gold bugs seeking to hedge against inflation caused by money printing are likely going to feel pretty strong when the markets open.

stimulus cheques are in the mail
USDZAR

It looks like we had a fake breakout of the downtrend last week. The R14.50 level is going to be key. There could be a great risk-reward long trade off that level, although a break below it (likely driven by a falling DXY), would likely make for an easier trend-following trade.

Offshore trade ideas
VanEck Vectors Gold Miners ETF (GDX)

A decent bounce in the gold price will no doubt be bullish for gold stocks in general. If GDX can clear resistance at $33.25, we could likely see it bounce as high as $35.50 and having another crack at breaking the current downtrend.

stimulus cheques are in the mail
VanEck Vectors Junior Gold Miners ETF (GDXJ)

Momentum is turning bullish on GDXJ as well (which is also the case on GDX above). The line in the sand here is $48.57. Above that and we have a strong case to get long.

stimulus cheques are in the mail
ETFMG Prime Junior Silver Miners ETF (SILJ)

SILJ is a little in the middle of nowhere, although the bullish candles off the 200 day moving average and a solid bullish engulfing candle on Friday, and rather bullish looking momentum, makes for a strong case to be long SILJ.

Offshore stockbroking rates
Trading instrumentBrokerage rateMargin rateMinimum trade charge
U.S. listed equities and ETFsUSD 1 cents per share100%USD 2
Canada listed equities and ETFsCAD 2 cents per share100%CAD 2
U.K. listed equities and ETFsGBP 12 + 0.1%100%GBP 12
Germany listed equities and ETFs0.20%100%EUR 8
Forex0.40%100%USD 4
South African trade ideas
JSE Top 40 Index (ALSI)

The ALSI has been trading higher in ‘steps’. As long as the blue trendline holds, I’d expect the ALSI to keep stepping higher. After all, for the Americans, stimulus cheques are in the mail. Risk-on is likely going to be bullish for emerging markets.

stimulus cheques are in the mail
ABSA Group (ABG)

ABG above R136 could be a good buy. Recent risk-reward if you are patient enough to wait for a confirmed breakout.

African Rainbow Minerals (ARI)

A set of rather bullish candles and a hold above the 50 day moving average on ARI sets the stock up for a decent long trade in the new week.

stimulus cheques are in the mail
BHP Billiton (BHP)

BHP is presenting a high risk-reward long trade off the 50 day moving average.

stimulus cheques are in the mail
British American Tobacco (BTI)

Stop loss below R540 with a target at R590.

Compagnie Financiere Richemont (CFR)

Very nice flat top triangle on CFR. A stronger ZAR could work against this trade, although global risk on driven by stimulus could overpower the headwinds.

stimulus cheques are in the mail
Capitec (CPI)

CPI has been drifting lower for a while now. A solid break above R1400 would open for a R1495 price target.

Nedbank (NED)

Very technically, Friday closed above the resistance level and thus a long is triggered to be entered on Monday. Stop loss below R140 with a price target of R170.

stimulus cheques are in the mail
Harmony Gold Mining (HAR)

HAR reclaimed the 50 day moving average. Considering that stimulus cheques are in the mail, as long as HAR can hold above the 50 day moving average, the long trade is looking attractive. Keep a tight stop though, momentum is looking rather bearish. That said, a strong reaction to the stimulus could be the driver here, which would very likely ignore all technicals.

GoldFields (GFI)

There are signs of bearish divergence, which would play into the large Head and Shoulders pattern. That said, we are still to see how the market (and gold) reacts to the weekend stimulus. For now, as long as GFI can hold above the 50 day moving average, I’d rather be long.

DRD Gold (DRD)

The bearish divergence is a bit more pronounced here, and Friday’s candle (doji) was a close below the very short-term trendline. Under normal circumstances this would trigger a short trade, although, once again, it would likely be wise to wait a day or so just to see what the gold price is going to do. We might see an initial bullish reaction in gold based on the ‘inflation’ narrative, although extreme risk-on sentiment could drive equities and cryptocurrencies more than gold. Some patience to wait for a more clear signal here would be wise.

Local stockbroking rates
Trading instrumentBrokerage rateMargin rateMinimum trade charge
JSE listed equities and ETFs0.30%100%R150
CFDs on JSE listed equities0.20%10% – 25%R50
SAFEX listed index futures (ALSI)R206% – 8%R20 per contract

*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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