Over the last few weeks, markets have remained rather strong in the face of many challenges. Last week we finally got confirmation that more stimulus cheques are in the mail for Americans, although it seems that $1.9 trillion was not enough to help equity indices end the week in the green. Risks remain elevated and volatility is stubbornly not abating, thus we are starting to think that it is time for a pullback. There are a few long indeas in precious metals and commodities, but for the most part, caution is advised.
Offshore trade ideas
S&P 500 (SPY)
The rising wedge is tightening and bearish divergence has emerged on both momentum oscillators. The time for a pullback nears. This turns our bias toward the downside. The 50 day moving average, currently coinciding with the lower channel support, will be the key level to watch in the week ahead. A bounce from it is possible, although it is more likely that the support fails. A break below the key support would offer a great risk-reward short trade to the $350 level (200 day moving average).
QQQ has broken out of and retested its upward trending channel. It looks to be making an ABC correction. A short trade can be entered with a stop just above the highs of ‘B’ and a target price of $275 (‘C’). The time for a pullback is upon us.
Dollar Index (DXY)
DXY is still trading in its corrective channel (green), thus right now there is not too much else to do but to wait for either a break out of the lower end of the channel, or a break above the 200 day moving average. Our bias here is toward the downside, thus Dollar weakness, although we will have to be patient and allow the market to show us what it wants to do.
S&P 500 Volatility Index (VIX)
The VIX has not closed a week below 20 for over a year. We’d pointed out last week that if we can get a clear break below 20, equity indices should be able to sustain their currently rally. This has not happened though and therefore we remain cautious on global equities. Bond yields are going higher and interest rates are likely to follow in the medium term. This will have an impact on equity valuations in due course and therefore could lead to a slightly larger scale correction in the weeks to come.
Brent Crude Oil
Brent Crude Oil has formed a bearish three bar reversal pattern on the weekly timeframe. This will likely not be the end of the uptrend, although could well lead to a decent correction. Our expectation is that it is time for a pullback and that Oil trades lower to retest the trend line. We expect the uptrend to remain intact, although if the trend line breaks, all bets are off.
Gold continues to bounce toward the previous support/resistance level. Should it break above $1765, we could see Gold trading up to test the zone between the 50 and 89 day moving averages. We have to remain aware of the fact that the turnaround in fortunes of 10 year US treasury yields could have a lasting impact on the Gold price. If treasury yields continue to rise, it will very likely be positive for precious metals and commodities in general and therefore we are shifting out stance to neutral on Gold and gold miners in general. Perhaps this current move turns out to be a small correction in a larger downtrend, although we are open to the possibility that given the ‘return of inflation and rising interest rates’ narrative could help the gold price form a base to trade higher.
We’re looking at both the daily and weekly charts on the USDZAR. On the weekly, we can see that short-lived false break from the downtrend line and how firmly the downtrend has resumed. On the daily chart we can see the importance of the R14.50 level. Our thinking is that we’ll likely see the USDZAR break below R14.50 and continue to strengthen towards R13.00 to the USD.
South African trade ideas
JSE Top 40 Index (ALSI)
So much for the steps higher we looked at last week. Is it time for a pullback? Currently the Top 40 has found support on the 50 day moving average, although once that level is broken, we’ll be scrambling for support around the 89 day moving average.
Anglo American PLC (AGL)
Rising bond yields will have some positive effects, which will likely play out in commodity prices. AGL has also been in a healthy uptrend for around a year now. Highlighted in the chart is the area between the 50 and 89 day moving average which we think could be a nice trend following buy zone.
BHP Billiton (BHP)
The 50 day moving average failed after we had pointed out a possible long trade, although this setup is looking even more attractive to us now. Once again it offers a high risk-reward long trade entry, backing the primary trend.
British American Tobacco (BTI)
BTI has moved nicely higher. The 200 day moving average could put up a bit of a fight and beyond that, the upper channel resistance at R590 could potentially stop the bullish move in its tracks. Watching for either a reversal at the resistance, or a bullish break of it, would likely yield s high probability trading setup.
Compagnie Financiere Richemont (CFR)
The flat top triangle formation on CFR has broken lower and the time for a pullback is upon us. The question now is whether or not the R140 level holds. Currently CFR appears to be offering a decent counter trend trade, although it would be wise to wait for a break (and hold) below R140 before entering a short position. A potential short target could be R132.
Clicks Group (CLS)
R239 is currently both a key support level as well as the 200 day moving average. A break below offers a decent short trade, with a target potentially as low at R220. Retailers in general have traded very well in recent weeks, thanks for decent trading results. With that positive fundamental backwind now mostly dissipating, it seems that it’s time for a pullback.
Gold Fields (GFI)
Gold might be forming a base, spurred on by rising bond yields. As mentioned earlier, we are staying rather open minded about the way forward for Gold, although it must be said that we do have a slight bullish bias at this stage. Given that context and the fact that GFI has broken and held above its 89 day moving average, we think that there is enough reason to enter into a long trade on GFI. The stop loss here would be under R135 with a first target at R159 (which would negate the previously shown Head and Shoulders pattern), second target at R170 and above that a trailing stop loss based on average true range.
Glencore PLC (GLN)
GLN has what looks to be a bull flag setup with support on the 50 day moving average. There is also evidence of bullish divergence on the stochastic oscillator. It would be wise to wait for a confirmed breakout of the bull flag before entering a long trade though.
Growthpoint Properties (GRT)
GRT is retesting the long-term trend lines. All three the medium and longer-term trend lines are stacked on top of each other and are likely to provide a strong base of support. Currently GRT is looking very attractive for longer-term equity investors (or long-term traders) to enter into new long positions.
SOL reversed from the resistance at R234 and with Oil prices likely to come under pressure, it seems that SOL has some downside yet to come. That said, we like the idea of accumulating SOL in the highlighted zone between the 20 and 50 day moving averages. Although there are some short-term headwinds for the Oil price in general, we think that Oil prices, and thus SOL, will continue to trend strongly higher over the medium-term (aka. over the next few years).
Joining HCA trading
HCA trading offers a number of different trading accounts to suit different types of traders. Our offshore trading accounts allow traders to buy shares, ETFs, CFDs and even fractional shares in the United States for only $2 a trade. Locally, we offer shares, ETFs and CFDs at good rates with robust and reliable trading platforms. All our trading, including CFDs, is done on a Direct Market Access basis and thus our clients are able to interact directly with the real equity market and not have to worry about excessive counterparty or liquidity risk. Our prime broker locally is a big four bank and offshore we make use of one of the largest non-bank prime brokers in the world.
Local stockbroking rates
|Trading instrument||Brokerage rate||Margin rate||Minimum trade charge|
|JSE listed equities and ETFs||0.30%||100%||R150|
|CFDs on JSE listed equities||0.20%||10% – 25%||R50|
|SAFEX listed index futures (ALSI)||R20||6% – 8%||R20 per contract|
Offshore stockbroking rates
|Trading instrument||Brokerage rate||Margin rate||Minimum trade charge|
|U.S. listed equities and ETFs||USD 1 cents per share||100%||USD 2|
|Canada listed equities and ETFs||CAD 2 cents per share||100%||CAD 2|
|U.K. listed equities and ETFs||GBP 12 + 0.1%||100%||GBP 12|
|Germany listed equities and ETFs||0.20%||100%||EUR 8|
*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.