The second half of last week got really wild, really fast. Given the fact that hardly anything has changed – in the sense that there are no interest rate hikes on the table for at least another year and a half, and that the FED will continue to buy $120bn worth of bonds every month – we think that the market might have had a bit of a strong ‘knee-jerk’ reaction to the FOMC minutes. Thus, we say buy the dip. As long as the free money keeps flowing, it will be difficult for the market to sustain downside.
Offshore trade ideas
S&P 500 (SPY)
The trend is very strong here, despite all the panic and noise out there. We’ve seen that the zone between the 50 and 89 day moving averages has proven to be a good ‘buying zone’ over the last year or so. Given that the FED is going to keep the easy money money flowing (low interest rates and bond buying), we think that this is a ‘buy the dip’ situation.
Russell 2000 (IWM)
Small caps (IWM) are a little messier than SPY, but a chance to buy (the dip) off the trend line would be welcomed.
Nothing can keep the tech stocks down it seems. Once the market shakes off the reality that ‘at some point’ the FED will stop giving it free money, odds are good that QQQ will just keep pushing higher. The trend looks strong, the index (ETF) is trading ver near highs. Some ‘risk-on’ in the week ahead should see QQQ leading the pack on the way up.
Dow Jones Industrial Average (IYY)
Our commentary on IYY is very much in line with that of SPY. The trend is strong. Buy the dip.
After the FOMC minutes on Wednesday, Gold took the elevator down. Perhaps the inflation narrative lost some footing, but we believe that in the medium-term it will rear its head once more. Our thinking is that Gold could be a decent buy off the support at $1680 (if it gets there).
Ouch! Platinum lost the $1140 support level in glorious fashion. Once again we think that buying around support could be a good medium-term entry. The world is starting to emerge from COVID, the use-case for both Platinum and Palladium in cleaning combustion engine emissions has not changes, nor has the supply side dynamics. Buy the dip.
Palladium also felt the smack pretty hard. Our thoughts here are similar to those on Gold and Platinum. We think that weakness (hopefully a little more) is a good opportunity to get entries into strong trends.
Brent Crude Oil
Talking about fundamentals not really changing; Oil is very firmly in an uptrend and as is the case with catalytic converters, there are some persistent supply side constraints in the oil market that have not gone away over the last year. We are still bullish oil in the medium-term. Buy the dip… if there is one.
U.S. Dollar Index (DXY)
Alright, so $92 target was reached. Now we wait for a little while to see if it can get above $93.50 and confirm the double bottom. From the look of things though, Dollar strength is likely going to become a rather important market theme.
Well, well, well. The USDZAR reversed off the ‘Historic large range’ support and also managed to break the ‘Strong resistance’ trend line. Does this mark a turn of fortunes for the Rand? We think it might just. The key level to watch here is R14.50. If the USDZAR breaks that level (likely dependant on the DXY and whether or not it keeps pushing higher), we could see a move back to the upper end of the ‘Historic large range’ at R15.50.
It seems for now that the $35k support level/zone is once again holding. Until we see a clear break of that level, we remain bullish.
ETH is also managing to hold support. As long as the support holds on a weekly basis, we are happy to remain long.
South African trade ideas
JSE Top 40 Index (ALSI)
Over the last few months, every time the ALSI traded in the green support zone, it has proven to be a good buying opportunity. Buying this level provides a good risk-reward trade, with a tight stop loss and a fair amount of upside. Perhaps the brave will be rewarded once more?
BHP Billiton (BHP)
The Head and Shoulders formation on BHP is looking rather tempting for a short trade. The risk-reward ratio on this trade is still very good. Well, if you use the top of the right shoulder as your stop loss, then risk-reward is close to 1:1, which is not that good. If you use the R425 as a stop though, then your risk-reward ratio is closer to 1:4. This is a very tempting trade, but not one that we will be getting involved in, at least until we can discern if last weeks’ madness was just a knee-jerk reaction from the market about FOMC minutes, or if we are going to see some prolonged downside in equity markets in general.
British American Tobacco (BTI)
Not much to do but wait for the trade to play out. Stop losses can be moved to be in-the-money.
DRD Gold (DRD)
DRD smashed through the support level, but held teh 89 day moving average. For now, we’re running for the hills on this one.
Discovery Limited (DSY)
R125 – R130 has been a solid support zone for DSY for about half a year now. Perhaps a move back to the R150 level from here? It is a little concerning that the 200 day moving average was broken, although we think the support zone is a little more significant than the moving average at this stage.
Mediclinic International (MEI)
The healthcare stocks mostly pulled back into their ranges, which takes the longs off the table for now. It’d be interesting to see if support comes in for MEI around R60, or if it breaks through there and finds support on R54. For now, we are sitting on our hands.
Mondi PLC (MNP)
Aaah, the good old ‘break out then die!’ formation. Our MNP trade has stopped out. We’ll keep an eye on it for a potential bullish reversal under the 200 day moving average though.
Old Mutual (OMU)
With some luck, we might see OMU at the bottom of the range (and at the 200 day moving average) again. We think it will make a good buy around R12.30.
Buy orders waiting in the zone between the 50 and 89 day moving averages for a longer-term trend following entry.
Another fake-out from a range. We still favour SLM for a longer-term position, although perhaps we’ll get a better chance lower down for an entry?
If all this ESG and Secunda pollution stuff can get it down to R180, we think its a strong buy.
If TKG could get back down to the trend line, we think it could be a good buying opportunity.
Our TRU trade is on the verge of being stopped out. Perhaps TRU tests the R51 level?
VOD is still range bound and is looking like a fairly safe short back to the R120 zone.
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*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.