We saw some fear and panic… for about a whole week. Well, in truth, the institutional money didn’t even flinch. The market bounced hard. The Evergrande situation unfolding in China is still rather risky, although it seems that the CCP are doing a rather good job at a ‘controlled demolition’. They might be making an example of Evergrande in an effort to cool off property speculation in general. There have also been some large repurchase agreement (repo) activity over the weekend, which is indicative of monetary stimulus measures to prevent contagion into other sectors. For now it seems, with some help from central banks (as usual), that the bull is strong yet!
Offshore trade ideas
S&P 500 (SPY)
So the SPY bounced off the 89 day moving average and has closed the gap it left on the way down. Momentum wise, it has generated a buy signal on the Stochastic, although not yet on the MACD. It’s not shown here, but it was interesting to see that during this selloff institutional positioning did not really change. Basically, nobody panic sold into the selloff… in fact, most people were buyers. Seems that the bull is strong yet! How long before we see new highs?
Russell 2000 (IWM)
Bwaa! IWM is the most boring index on earth right now. As has been the case for many, many weeks now; there is nothing to do here until this range is broken.
Philadelphia Semiconductor Index (SOX)
SOX, the great leader of U.S. tech stocks, is on the verge of breaking higher. This is a rather constructive setup and one that will likely see not only the SOX print new record highs, but likely QQQ and SPY as well. The bull is strong yet!
Dow Jones Transportation Average (DTX)
DTX is one of the more important indices we keep an eye on as it is a measure of ‘on-the-ground’ economic activity. The better the transport companies do, likely the better the overall consumer economy is doing. We’ve expressed concerns around the breaking of the 200 day moving average on this index in the past. Last week DTX broke its 200 day moving average, and reclaimed it. For now there is no real trade for us here, although we are keeping an eye on the (white) downtrend line as a potential buy signal. We must add though, if DTX loses the 200 day moving average support, we will once again start thinking very hard about defensive plays.
U.S. Dollar Index (DXY)
Once again we are talking about the $93.50 level on the DXY. It is interesting to see that institutional fund managers are increasing their long positions of USD. Should we see continued flow into the long USD trade, we can expect the DXY to break higher. The question is then; will we see softer commodities on the back of the stronger USD? We think that the answer to that is yes… driven by a few things. The Evergrande situation in China is likely to soften demand for iron ore, concrete and many other inputs to large scale construction. We also think that the overall impact is that we see the ‘building’ industry cool off somewhat in China. So what came first? The slow down of the construction boom in China, or the strengthening of the Dollar. Or are the two inextricably linked?
Weekly chart of the USDZAR. Some might see an Inverse Head and Shoulders here. It does look like the trend is turning and that a weaker ZAR is on the cards.
Brent Crude Oil
What is not inextricably linked to China is energy. And energy prices are going up! Oil made a new recent high and has its target trained on the $86.71 handle. Hold onto you (Sasol) butts! We’re going up!
Xtrackers Physical Rhodium ETC Fund (XHRO)
Rhodium has been a hot topic for a little while now. Mostly because it has been one way traffic down for the last 5 months. There is a long and winding fundamental story here, but for the traders who are considering picking a bottom, we offer the following guidance. Wait for the downtrend on the weekly chart to break before hitting the buy button. There are emerging signs that we could be near a bottom, but be patient enough to wait for a proper signal. Also, for everyone trading on the Velocity Trader platform; it’s a pleasure for having the XHRO ETF added to the platform for you. *tips hat*
South African trade ideas
JSE Top 40 Index (ALSI)
Our ALSI short last week worked out very well and we closed it very close to the bottom of the move. For now, we see no new setup here. Although we are mostly bullish going into the new week, we’re not being presented with a high probability entry, so we will be patient and wait for another setup.
ABSA Group (ABG)
The good old fashioned buying zone is once again offering a chance to buy while things look dire. Follow the trend, the bull is strong yet!
Anglo American Platinum (AMS)
Our commentary here is much inline with XHRO above. AMS is on the verge of generating a confirmed buy signal and is worth keeping on the radar. Don’t be over hasty though and wait for the most recent downtrend line to be broken.
The bull is strong yet! CPI looks like it is about to break to new highs.
Break, retest, go! We’re holding onto SOL on the CFD accounts with a trailing stop loss. Nothing much to do but give it the space and time to keep trending higher. Even from a longer-term perspective, this is at least a R300 stock. The bull is strong yet!
We’re talking to Ghosts!
We will be having a series of chats with The Finance Ghost and Mohammad Nalla during the month of September. Our goal is to educate the listeners and to let people out there know about what we do, and how we do it.
Petri shared a few war stories and answered some more of your questions. Have a listen to the episode below:
Be on the lookout for the final installment of Herenya September coming next week as we handed the mic to Jonathan, a real-deal day trader and part of the Herenya Team.
Want ideas, insights and research?
*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.