Bigger picture

There are not many good looking setups on the local market for us this week, so we’ve decided to rather look at some bigger picture themes. On that note, last week we wrote about how the market is looking and feeling a little stretched, although it seems that we got it wrong. Overall, sentiment is neither extremely bullish or bearish at this stage and equity positioning by larger active funds is still mostly underweight. So with ‘middle of the road’ sentiment and fund managers underweight, as well as over $1trillion worth of announced buybacks so far in 2021, it is reasonable to assume that the bid in the U.S. markets will remain rather strong going into the final two months of the year. There is also seasonality to consider. October is usually the strongest month, but beyond October comes the Santa Rally.

Sentiment

Below is the Goldman Sachs ‘Sentiment Indicator’ which measures stock positioning across retail, institutional, and foreign investors versus the past 12 months. Readings below -1.0 or above +1.0 indicate extreme positions that are significant in predicting future returns. As we can see, this indicator is currently only very slightly bullish.

Next up is the Bank of America ‘Bull & Bear’ indicator. Once again, it’s in the middle of nowhere. We interpret this as a signal that the market is currently able to sustain more upside without greed becoming too extreme.

Buybacks

The buybacks mentioned earlier is put into perspective by this chart from Goldman Sachs. Just over $1trillion consistently on the bid… More upside coming?

Tapering

It is also worth noting that even with the market mostly expecting tapering to start in November, and interest rate hikes to start mid-next year, the market is not responded negatively. Goldman Sach says “We are pulling forward our forecast for the Fed’s first rate hike by one full year to July 2022, shortly after tapering is scheduled to conclude. We expect a second hike in November 2022 and two hikes per year after that”. Even so, the market remains strong.

bigger picture

Now let’s go through our (mostly) usual charts and see what is out there.

Offshore trade ideas
Philadelphia Semiconductor Index (SOX)

SOX is a bit of a leading indicator to the greater tech stock indices in our view. Although there is not setup to trade here right now, this large flat top triangle has been in the making for a few months. A bullish break here would likely lead the broader market higher.

Nasdaq (QQQ)

Our bearish divergence shown last week was the wrong call. QQQ printed fresh all-time highs and seems to be set on grinding higher. Some tech excitement thanks to Meta might also be a driver here.

Dow Jones Industrial Average (IYY)

IYY is also looking fairly strong. Last week was mostly spent consolidating around new all-time highs and the week ended with the highest ever record close. In the very short term (5 days), this consolidation probably breaks higher.

Russell 2000 (IWM)

This IWM chart is one that our regular readers are probably very familiar with by now. Still not trade here, but still on the radar. This consolidation, at least in our view, will dictate the fate of the wider equity market in the 12 months ahead.

U.S. Dollar Index (DXY)

We’ve included both the daily and weekly chart of DXY here. On the daily we note that our short-term target from our ‘Headed for news highs‘ post was tested. From there DXY bounced hard. Our base expectation here is that DXY will likely rise, or the U.S. Dollar will strengthen, in months to come. Much of this we think will be driven by two forces. 1. Funds flowing into the U.S. Treasuries market as investors will start to seek protection against inflation, and 2. The energy crisis is not nearly as severe in the U.S. as it is in Europe and China, which should give the U.S. economy an advantage during the winter months.

China Coal Futures (CCEX2021)

Longer-term view of Coal Futures in China. It’s been rather volatile (to say the least), but in our view the party is not over. Lots of Chinese coal production was impacted by flooding (about 50 mines) and we are likely in for a cold northern hemisphere winter. We think that (although extremely volatile) weakness here can be bought as coal will likely stay hot (excuse the pun).

Gold

We don’t want to go too much into the commodity commentary here, perhaps a post for another time. But this weekly chart of Gold shows a large symmetrical triangle in the making. Keep it on your watchlist.

Xtrackers Physical Rhodium ETC Fund (XRHO)

We showed the XRHO chart before and show it to you once again. This is a weekly chart, so the timeframes here are slightly longer-term. This chart is working its way into our hearts and might be one of our favourite setups in the market at the moment. You can put on a fairly tight stop and potentially get a decent ride back to the highs.

USDZAR

Daily and weekly charts on USDZAR. On the daily, we have reached the top of the recent range between 15.30 and 14.15. The weekly chart shows us that it is sort of back in the range it was trading before this whole pandemic thing took the world by storm. Perhaps it is reasonable to assume that (unless South Africa shoots itself in the foot) the USDZAR should stay in this range for a few more months?

Bitcoin & Ethereum (BTC & ETH)

We’ve grouped these together this week because they both look rather good. ETH admittely looks a little better that BTC, but we are on track for a new high on both we think. We noticed that some of the larger investment banks started updating targets on these two as well, with Goldman Sachs saying they see ETH going to $8k. Regular readers will know our targets and expectations for year end. Newer readers should have a look at the 2021 roadmap for Bitcoin, Which cryptocurrency to buy in 2021, Stimulus, Gold and Bitcoin and It’s time to buy Bitcoin posts for context. They are older posts, but our views have not really changed.

South African trade ideas

As we mentioned earlier, there is not really much in the local market that looks attractive to us now. So we only have three ideas to share with you this week. Surely there will be some setups to come in future, but for now, perhaps this is a good time to practice discipline.

Woolworths (WHL)

WHL could be a good buy off the 200 day moving average here. Risk on sentiment and strong buying in the U.S. could raise all ships, and local retailers have been underwater for a few months now. Also, Christmas is coming and retailers tend to like them some of that Santa Rally.

The Foschini Group (TFG)

TFG has been consolidating around the 200 day moving average for a while now. It offers a decent, high risk-reward long trade from here. Keep a tight stop though.

Vodacom (VOD)

Maybe this 6 week plus selloff in VOD is a little overdone now? Back in June and July, the zone between the 89 and 200 day moving averages proved to be a good buying zone. Let’s see if the general market agrees this time.

New educational content

We uploaded the JSE Power Hour presentation Petri did earlier this year, although the link in the mailer that went out did not work. So for those who are keen to watch the video and download the slides, please have a look at our Presentations page. You will actually find most of the Presentations that Petri has done over the last fews years, including the slides. It’s a good place to start learning if you are new.

  • what I wish he knew as a new trader

    What I wish I knew as a new trader: 4 March 2021

  • Petri Redelinghuys Traders game plan

    Traders game plan: 16 April 2020

  • HCA-trading-how-the-3-percent-perform

    The realities of trading: 7 December 2019

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 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
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
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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.

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Every week needs a new plan!

Markets change all the time. New fundamental drivers emerge, technical setups mature or fail and our trading plan must adjust in order to keep up with the ever changing environment. Every week we highlight some of the trade ideas that are generated within our client community so that you can stay on top of what we're looking out for and planning to trade at the beginning of each week. 

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