The events of the last week have been nothing short of horrific. But once again, we have shown that the South African spirit cannot be broken! People of all kinds have rallied to not only protect their communities and loved ones, but also to rebuild, repair and bring support to those most severely impacted by the attempted insurrection. Our ability to indiscriminately band together in the face of adversity is perhaps our nation’s greatest strength. And to that end, I want to use this week’s post to encourage you to support KZN this Mandela Day.
veld.app (providing an online store / technology solution), together with Food Lovers Market Fourways (organising parcels) and powelltronics.com (logistics management / delivery), have put together grocery parcels that they are flying down to Durban (KZN) to bring relief to those who need it most. I want to encourage every reader of this blog to support this initiative by purchasing/donating one of these parcels.
Our nation has proven time and again that nothing can stand in our way. And that no matter how dark times might be, there is a light of love and hope that shines in each and every one of us.
And on that note, let’s look at some charts shall we?
Offshore trade ideas
I want to preface the offshore section this week by gently reminder our readers that Herenya offers very low cost offshore trading and investment accounts ($2 a trade in US markets) and can help you with offshore transfers, tax clearance and managed offshore portfolios. In fact, our offshore model portfolio has performed rather robustly since its inception in March 2020.
Please feel free to contact us if you would like more information on our managed long-term investment account options.
Ok, let’s get into the shorter-term trading charts.
S&P 500 (SPY)
The last week was marred with drastically deteriorating market breadth. Fewer and fewer stocks are trading higher on a daily (and cumulative) basis and thus is appears that the U.S. market is preparing for a pull back. Our base expectation is that the SPY should pull back to at least the 50 day moving average before potentially finding any support. We’ve been buying the dip for a few weeks now, although given the current market breadth, this is a dip that we have shorted.
Russell 2000 (IWM)
IWM has moved toward the bottom of the range beautifully. Now we need to watch for a break or a bounce from this level. In either scenario, there is a high probability trading setup. Take note that usually these types of rectangular price formations are trend continuation patterns, so the bias should be bullish. Although unless market breadth improves (aka. advancers outnumber decliners) in the coming week, IWM might be the ‘leader’ on the way down.
Since we’re talking about pullbacks, QQQ is looking ripe for a short.
U.S. Dollar Index (DXY)
It seems our dream of a pull back in the DXY is but a meme. DXY looking like it’s getting ready to break up toward $93.50.
I guess we’ll have to see what happens here. Personally, I think it’s a good time to buy some USD. The outcome of this chart will be determined by a few things; how the international investment community perceive the current situation in South Africa after a weekend of digesting the news, and how the DXY trades in the coming week. If we see a stronger USD and a general risk-off appetite for South Africa, I think that 200 day moving average might be broken and the ZAR could end above R15. Let’s see.
Brent Crude Oil
Semi-decent pullback last week. OPEC+ have over the weekend decided to increase production, so hold onto your butts because we might see Oil flushing out the weak longs.
South African trade ideas
Clicks Group (CLS)
CLS is looking good for a short trade to the bottom of the range around R239. Decent risk-reward if you can get in around Friday’s close or higher.
Anheuser-busch Inbev (ANH)
Not the absolute best entry for this trade, but still a fairly decent risk-reward on offer.
Dis-Chem Pharmacies (DCP)
Not really a trade idea per se, but if Loch Ness over here can keep it’s head out the water while the rest are drowning, this is going to be a stock to watch when the ‘recovery trade’ finally comes around. In other words, if DCP keeps consolidating sideways while the macro and micro-environments are pulling back… when both offshore and local markets pump again, this stock is probably going to fly! Note though, that is only if this current consolidation between R30.50 and R32.50 does not break down while other markets (and specifically, other retailers) are falling.
Another front-runner in the ‘recover trade’ will be CSB. The brave seemingly have already started positioning for an end to the unrest and the enormous rebuilding efforts that will no doubt take place. CSB is well positioned to benefit from small business and private individuals repairing and rebuilding damaged buildings in the coming year.
I’ve bailed on the long trade here and might even consider going short below the R120 level.
SOL is looking very weak here and is ticking the boxes for a secondary down trend. Weaker Oil prices might aid the short trade here as well. Stop at R220, target at R180, try get an entry above R205 to make it worth it.
Support KZN this Mandela Day
Once again, if you are in a position to make a donation to support KZN this Mandela Day, please do so by buying/donating an essential grocery parcel for a family of four via the veld.app store. Last year I worked on the Say Siyabonga project with some wonderfully amazing people, and some of those very same people are behind this initiative to bring critical food supply to those who need it most in the wake of recent events. Every donation helps.
*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.