It’s been a good while since we lasted posted a weekly game plan and we thought that the time had come to wipe the dust off our blog and get to sharing the weekly game plan again. On that note, the last time we posted we indicated that we preferred to stay on the side-lines, but now we find ourselves asking if it is still a time to be careful, or not time to get back into the market?
To answer this off the bat, our current thinking is that it might still be premature to start buying as we believe that there are still too many risks overhead for the market to turn and go into ‘bull mode’ from here. That said, turning points are hard to see when they are happening. Therefore we are open to ‘buying the dip’ here, although we would like some more evidence that the market is turning (as opposed to just giving a bear market rally) before we start to reduce our cash holdings (by buying stocks) in our long-term managed portfolios. Thus, the overall message here is that we think the time to buy is getting closer, but we are not sure that it is now.
Let’s look at some charts though and see if there are any shorter-term trades to be found.
Offshore trade ideas
S&P 500 (SPY)
Since our last SPY chart in February the index has traded significantly lower. It traded in a rather large range, which it looks to have broken to the downside. In recent weeks we saw SPY retest the break out from this range and fail to reclaim what used to be the support level. Our base expectation here is that we see another leg down, perhaps as low at $370.00 on the SPY ETF (3700 on the Index). A confirmed break above the previous support (now resistance) will invalidate this view, but as long as it fails to reclaim old support, our view is bearish. On Balance Volume (OBV) indicates to us that more volume is being traded on down days, and thus we expect momentum to remain bearish.
Our QQQ chart here is not as detailed as the SPY chart above, although there is a somewhat similar setup. Here though we see the significance of this previous support level turned resistance. Once more, as long as QQQ remains below this level ($310 on the QQQ ETF), and this bearish trade action is confirmed with OBV pointing down, we think the best trade here is to be short.
Brent Crude Oil
Below are both a weekly and daily chart of Brent Crude Oil. We’ve marked the previous high of $148.40 made in 2008. Given the current constraints and supply issues in the global energy market, we do not think that $148.40 is an unrealistic target for oil over the next 6 months or so. Take this with a pinch of salt though as we are long oil and various other energy facing stocks, so it might just be our bias here. Although, when looking at the daily chart, we see a resistance level that was broken, retested and price bounced higher. Currently price is sitting just below a slightly higher resistance level and we think that if this level breaks, it could clear the path to $130. Should oil get above $130 and manage to hold the level, that $148.40 target could come into play.
Unfortunately we have no deep insight into the Rand at the moment. It seems stuck in the middle of an upward sloping channel and on a significant horizontal support level. During recent weeks it has been stronger against the USD than expected, although in context, South Africa is benefitting from generally higher commodity prices. Thus, perhaps it could bounce here and trade up to the R16.20 region again, although we think it equally as likely that it break lower and trade towards R14.80 on the back of a tighter commodity market. For now, it is a wait and see scenario for us.
Northrop Grumman Corporation (NOC)
Since Russia’s invasion of the Ukraine, defence stocks have been trading very well. To be fair, we were long both NOC and LMT (Lockheed Martin) since before the conflict erupted as they are generally defensive (mind the pun) stocks to start off with. Since the conflict of course, a large fundamental tailwind has helped these stocks perform very well as countries around the world are placing their orders for more military equipment. In general we believe that defensive contractors and manufacturers are poised for a era of plenty as nationalism slowly undoes years of globalisation. It’s a long story, but the short version is that we have a flat top triangle on the daily NOC chart that looks poised to break out higher.
South African trade ideas
Top 40 Index (ALSI)
Well, there is no hiding the fact that this chart looks terrible. The ALSI had a bearish break from a well established upward sloping channel, followed by a retest and what now looks like a decent setup for a short trade. As mentioned above, the Rand as well as our market in general, has been rather resilient given the global macro picture at the moment. While our commodity stocks are doing their best to support the index, the rest of our market is not being spared. Thus we like the short setup on the ALSI with a tight stop and a lot of room on the downside.
Aspen Pharmacare (APN)
With the vaccine tailwind long since blown, the trend is firmly down for APN. We see the stock trading lower in ‘steps’. Periods of consolidation followed by a step lower. As probabilities go, a break below R149 would likely lead lower. It is difficult for us to put a target price on this potential move, but a trend following or trailing stop approach would do well here.
Astral Foods (ARL)
ARL has traded well over the last month, but it has now reached what looks like a significant horizontal resistance level. From here the highest probability trade, given the larger bearish macro backdrop, is a short trade back to the bottom of the range.
MNP has made a bear flag formation which is looking like it wants to break lower. The price target for the formation would take this stock closer to the R100 level. Perhaps that is a bit far down, but either way this is not a stock we want to be long. A break below the flag would see us enter short with an ATRx2 trailing stop loss.
NPN seems to be setting up for another leg lower. There has been a lot of chatter around ‘the time to buy Chinese tech’ which would obviously be good for NPN. Although from a chart perspective, R1450 looks like a fairly safe bet at this stage and if that level fails, we could see NPN below R1000. For now though, the trade is a short off the resistance level, targeting the bottom of the flag (R1450).
There is not really too much to add here other than the comments on NPN above. We thought we would show the chart anyway, as it looks very similar to the NPN chart above.
The gift that keeps on giving. No real entry point here for new trades, although SOL did recently break a flat top triangle (resistance level was at R400). Given the context of oil (above), we like SOL for a slow grind higher towards R500.
Transaction Capital (TCP)
It is no secret that TCP has long been one of our favourite stocks, but from the look of the chart, it seems that the uptrend is in trouble. From a long-term perspective we are looking to lighten up on TCP a little and should the R40 level fail, perhaps even get out of the way completely until we see a compelling entry point at some point in future. In other words, it looks like this trend line is broken and we could see some downside in the near future.
Thungela Resources (TGA)
For many moons henceforth they will sing songs of glory and joy of the great rally of TGA! Listed at R20, trading at R250… a great tale indeed. Where too from here though? Our view is that the energy market will remain tight over the medium term. Aka. we think that energy prices, more so ‘dirty energy’ prices will continue to rise for the next few years. This positions TGA very well to continue its stellar run. New long trades can only be entered if/when this symmetrical triangle gives an opportunity for an entry. The long bias aside, we should remember that thus is a symmetrical triangle, so generally it is a trend continuation pattern, but can also break lower. Either way, the pattern gives us a decent high probability setup to trade from once it gives us a confirmed break/signal.
Herenya Managed Portfolios
We’ve not made too much noise about this (yet), but Herenya now has three portfolios that clients can invest in. Our performance has been rather good (if we must say so ourselves). In time we will build a dedicated page on our website for our managed portfolios, although for now we would just like to make our latest fact sheets available for download. Below are some details about our managed portfolios, as well as the latest fact sheets for each. Please contact us if you would like to invest in one or more of our portfolios.
Herenya Offshore Long-Term Equity Portfolio
Herenya South Africa Long-Term Equity Portfolio
Herenya Active Trading Portfolio
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 instrument||Brokerage rate||Margin rate||Minimum trade charge|
|JSE listed equities and ETFs||0.30%||100%||R150|
|CFDs on JSE listed equities||0.20%||10% – 25%||R50|
|SAFEX listed index futures (ALSI)||R20||6% – 8%||R20 per contract|
Offshore stockbroking rates
|Trading instrument||Brokerage rate||Margin rate||Minimum trade charge|
|U.S. listed equities and ETFs||USD 1 cents per share||100%||USD 2|
|Canada listed equities and ETFs||CAD 2 cents per share||100%||CAD 2|
|U.K. listed equities and ETFs||GBP 12 + 0.1%||100%||GBP 12|
|Germany listed equities and ETFs||0.20%||100%||EUR 8|
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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.