Two weeks ago in our last post, we proposed that buying into the sell-off and VIX spike would make for a good long entry, both on equities (offshore) as well as on Oil. That play worked very well and markets are bouncing back rather hard. From here we think it is most probable that the market (U.S.) goes on to make a new all-time high. We do harbour some concerns around market breadth, especially within the Nasdaq index (US100), but even so we believe that over the short-term (until the end of the year), it is most likely that markets will remain bullish and push a few new highs.
Offshore trade ideas
S&P 500 Volatility Index (VIX)
After a brief Omicron induced panic spike, the VIX is firmly sub-20 once more. We bought some puts expiring mid-January that are going to print once the VIX gets below that 17 handle. For now we are only looking to bank the puts once they are in the money and not take any new trades here until we see another high probability setup.
S&P 500 (SPY)
Initially the SPY fell a little further after we called it a buy, although by Wednesday it bottomed out and what follows was a week and a half of strong performance. From here the charts looks like it will remain bullish and push a few new highs. A relatively safe call in our view. More aggressive traders could try buy the break out here if they missed the VIX long trigger two weeks ago. If you do chase it though, use a two-day low trailing stop.
Brent Crude Oil
Oil have a very similar volatility setup to SPY, and the trade also played out rather similarly. Below though, we look at a weekly chart to help us see the current primary trend a little better. We are still bullish energy here and we are happy to sit long oil and energy facing stocks for the foreseeable future. There is a lot of talk of a cold winter and the worsening of the energy crisis in Europe. We are well positioned for this scenario if it plays out, so we wait patiently.
Sentiment has given the green light
This sentiment indicator from Goldman Sachs is one that we have shown in the past. The GS Sentiment Indicator measures stock positioning across retail, institutional, and foreign investors versus the past 12 months and has finally ticked below -1. This is an extreme level for the indicator and has historically been very reliable buy signal for equities.
Breadth is a concern
It’s not all sunshine and roses though. If you look at market breadth, especially within the Nasdaq index, there is a concerning trend. As the chart below indicates, only 35% of the stocks in the index are above their 200 day moving averages while the index itself is within 2% of all-time highs. Something needs to give here. Either we need to see a broad based tech rally where many of the ‘smaller’ tech listings outperform for a few weeks/months and catch up to the broader index, or the ‘larger’ tech listing need to put in a pull-back to catch up with ‘smaller’ ones. For now, there is no real actionable idea to be gleaned here, but this is definitely something that should be on your radar.
South African trade ideas
[death by] Ellies (ELI)
Well, this one hurt! ELI released a disappointing trading statement and the share price tanked on Friday. From a long-term perspective, there is probably still a decent case to be made for holding this stock or even buying it at or around the 20c level. The market chased this stock higher (as did we) on anticipation of great earnings driven by solar/inverter/battery sales spurred on by Eskom’s load shedding. Somehow, ELI managed to disappoint in a big way and the market hit the sell button pretty hard. We have to admit, we stood in line for our PK much like everyone else. It was not fun. A good reminder perhaps to stick to the more liquid stocks when it comes to active trading.
Brait SE (BAT)
So alright, from a sub-R1 stock to a R4 stock. It feel ironic. Thus perhaps the disclaimer first: this is not a very liquid stock and is not ideal for short-term traders to be aggressively speculating in. That said, the chart does look good and given the ‘Omicron is not as bad as we thought’ narrative, we might see some of Brait’s business (gyms) start making some good money again. This looks like a decent long-term entry for those who are willing to hold it for a few years.
Exxaro Resources (EXX)
It’s a little messy, but it looks like a fairly solid range that EXX has been in for the better part of a year now. Taking a long off the bottom of the range here offers a high risk-reward trade with an easy, clear stop loss.
The Spar Group (SPP)
Talking about messy ranges… here we have an SPP weekly chart that seems to be offering a similarly high risk-reward setup. This time though, the range spans over almost seven years. This might be best traded as an equity and not a CFD as the bounce to the upper end of the range here could take several months to play out.
That’s all folks
That’s all we have for you this Sunday. If you would like more insights and trade ideas, consider opening a trading account with us and joining our community. We work really hard to add value for our clients by giving them information, analysis and guidance. We also offer some very competitive rates on trade executions and have accounts that are suited for very active, semi-professional and intraday traders. Give us a call or drop us an email if you would like more information.
*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.