Investor sentiment is at almost historic lows, which is hard to believe if you look at how equity markets have traded over the last few weeks. Sure, the overall market is down some 20% odd from the highs, although given just how bad the sentiment is out there, you’d think that market would be much, much lower. Interestingly, investors have largely not sold much even though they are so deeply negative. It’s almost as if they are waiting for a catalyst of sorts to spur them into action, with most of them actually waiting to buy the dip. So what should we do? We think that waiting and being defensive is still the best idea. We think that the negative effects of higher interest rates and higher inflation have not yet filtered through into the housing and jobs markets, and once those begin to crack, we might see equity flows follow. Most of the time it pays to be a contrarian, although sometimes is better to just be patient.
Offshore trade ideas
S&P 500 (SPY)
SPY put in a decent rally last week, although we note that it has formed some rather bearish divergence. It does look like a really high risk-reward short trade from here… but maybe it would be safer to sell around $420? We maintain our target price of $338 over the next few months and remind ourselves to just be patient.
Bearish divergence on the QQQ’s as well, although this time around a more obvious resistance level. Also, as is the case with the PSY chart, a fairly bearish candle formation as well.
U.S. Dollar Index (DXY)
The pullback in DXY we pointed out last week is working out so far. It would be nice to see DXY come down some more and even to potentially test $104. Overall the trend is strong here and a ‘healthy correction’ should not derail the overall trend. Just be patient, we might get a chance to get on this trend slightly lower down.
Once again a story of divergence playing out. Our target from last week was R16.50, which we reiterate now. Just be patient.
Brent Crude Oil
Oil is still stuck sort of in no man’s land. The support at $98 held, but it has not managed to get meaningfully above $105 again. Again we want to reiterate our bullishness here. As mentioned, a good correction every now and then keep a trend nice and healthy, so some downside (although scary) is not always a bad thing. The closer oil gets to $90, the stronger our urge will be to buy more.
South African trade ideas
JSE Top 40 Index (ALSI)
A little bit of whipsaw over the last few weeks here on the ALSI. We did enter a short position, which so far is not going too well. A break above 62k will force us to close our short and look to re-enter higher up. For the next few months though, we will just be patient and keep to our target of 53k.
Anglo American (AGL)
So much bearishness, and here we are about to say that we are bullish on AGL (and a few others below). The catalyst here will be earnings we think, so just be patient and let those be released before making a move. Should earning beat, it’s back to R700 and higher.
Astral Foods (ARL)
We has ARL short and have stopped out as it broke out of the range in which it was trading. Perhaps it’ll make a good long trade from here… but we are just going to lick our wounds and sidestep this stock for now.
GRT had a decent bounce from R12 and has formed what looks like a small inverse head and shoulders. While the world is unsure of whether it wants to melt down or melt up, GRT might just stay stuck in its (very large) range between R12 and R15.60. This little inverse head and shoulders could present a good entry for the trade back to the top of the range.
Life Healthcare (LHC)
We’ve been eying LHC for a few weeks now and it seems to have formed a decent bottom just above R17. We like the long trade here with a stop below R17 and a target of R24.
PRX is also sort of in no man’s land at the moment. It has had a spectacular bounce from the lows, basically almost doubling in a few weeks. it finds itself right in a previous support zone, which would likely now be resistance. A break above this zone would be very bullish and see the stock finally start to close the discount with ‘big brother’ Tencent. Although we all know it’s the wild west out there… so be on the lookout for a reversal and bearish break lower from this zone. Right at this moment there is no trade signal here, but just be patient, it will come.
THA is looking good for a long trade here too. It was a little dicey, but R20 held. Should the green trend line be broken here, we could see THA trade back to the lower 30’s.
*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.