Well, another very difficult week is behind us and to be honest we think there are many more difficult weeks ahead over the next few months. The realities of a global recession are starting to ‘hit home’ so to speak and global equity markets are not happy. Although we are seeing nothing but shorts in the shorter-term, we do think the most important message to get across in difficult times such as these is two-fold:
First – it is an enormous opportunity to get into the stock market, especially if you are a passive saver making monthly contributions to an index ETF or fund of sorts. If you can, double your monthly contributions to equity investments. It may be difficult to work this into already pressured budgets, but over time you will thank yourself for tightening your belt now and buying more and more as the market dives deeper and deeper.
Second – there is no reward without a little pain. The reality here is that if you increase your investment now, you will feel some pain in the short-term as you watch new contributions shrink each month just for you to add more into a shrinking pot. It is not going to feel good. The truth is that you will not be able to perfectly time the bottom, so cutting monthly contributions until you are convinced that things are better will very likely mean you miss the bottom and miss the chance to get great overall market (index based) exposure at a decent average price. Doing the right thing is never easy, and even more so when you are acting in your own best interest. Bite the bullet, act in your own best interest and take the short-term pain. The reward is years away, but it will be worth it.
If you would like for us to help you with a solid investment plan for the next five to ten years, contact us and we’ll gladly help.
An on that note, let’s move onto some shorter-term trade ideas. As mentioned above, it’s not looking good out there are we are seeing nothing but shorts.
Offshore markets
S&P 500 (SPY)
As usual we start with SPY. We’ve been aiming lower for long while now and nothing has changed. Our target remains indicated on the chart as it has been for many months. The question we are asking ourselves now is whether or not the 3370 index level is going to be the bottom, or just a brief support level?
Nasdaq (QQQ)
Looking at QQQ shows a similarly dire picture (as is the theme of this post in truth). We’ve marked out the previous (pre-covid) high, which as is the case above, should serve as both a target and support level for the current equities rout.
Philadelphia Semiconductor Index (SOX)
More of the same for the semiconductors. We guess we’ll see how this, and the indices above, behave when they get to their respective pre-covid highs.
U.S. Dollar Index (DXY)
We’ve pointed out before that the Dollar was last this strong during the dotcom crash, so we thought we would show it again for context. It won’t happen in a straight line, but we think that the 120 level on DXY is rather realistic given the circumstances. Make no mistake, this is putting severe pressure on U.S. corporate earnings as well as commodities, and the real damage will become apparent in the next earnings season.
Gold
Talking about commodities coming under pressure, gold seems to have broken its support level. Although we hold some gold exposure in our long-term portfolios, the short-term picture looks pretty bleak. Our initial thought after this break is that we might see $1480..? The thing is, if we see proper panic in markets in the next week or two, people will sell everything. This means that even the ‘safe haven’ assets will be sold off in the panic and mad rush for liquidity. Perhaps we see a similar washout to $1480(ish) as we saw during the onset of the covid panic days, before gold catches a bid and starts behaving like the ‘safety’ it is supposed to be?
Brent Crude Oil
Is this it? Has oil cracked support and is finally going to give in to the negative pressure of contracting global GDP? Or will OPEC+ cut more production and defend $90 with everything they have? Stay tuned for this week’s instalment of Energy Markets Gone Mad! Jest aside, that is actually a serious set of questions.
USDZAR
Weekly chart here just looking at the trend on USDZAR. It’s not looking good folks. Unless you have Dollars, then it’s looking awesome. Are we going to see R20 to the USD within the next six months? Probably.
Bitcoin (BTC)
Over the longer-term we are still bullish on BTC, but we want to reiterate that we would only be buyers closer to the support level, which is currently around $16.5k. The chart looks fairly bearish, so there might even be a chance to get some BTC below the support level. If the world is going to panic, let it panic. Just keep your own head cool and try not get trampled as the masses rush for the lifeboats. As mentioned earlier, this is a massive opportunity to make some very good long-term returns. Be patient and be decisive. But mostly, be patient.
Ethereum (ETH)
Great insights on ETH merge from Geo here (Geo interview podcast). Do we get a chance to load up around $750?
South African trade ideas
JSE Top 40 Index (ALSI)
It takes a little time, but charts often work out. Our target remains set at 53k. For those that are short this index, an ATRx2 trailing stop loss would be appropriate from here. You need to give it some room to breathe, but also need to make sure that it doesn’t rip against you and take back all the gains. Let’s see how long it takes to get to 53k and how it behaves once there. For now, enjoy the ride.
Investec (INL)
Well, nothing but shorts were promised, so nothing but shorts we’ll show. Nice rounding top here on INL with a scary low target at R41.20. This will be a slow grinder of a trade if it reaches target, so a volatility based tailing stop (like ATRx2) should too well to manage risk here.
Compagnie Financiere Richmont (CFR)
We’re pre-empting a massive head and shoulders formation here, but we’re pretty sure that we’re not the only ones seeing this… right? Would love to hear your comments, let us know what you think on twitter.
British American Tobacco (BTI)
Well ok then. We looked at BTI some time ago and pointed out this flat top triangle. Our thinking was that in a much weaker ZAR environment BTI could break out nicely toward the upside here. But now the market theme is nothing but shorts and BTI had a proper daily close below the trend line. We are tempted to hit the short here, but think we might have to do this trade in half-size.
MTN (MTN)
R91.42 is a long way down, but we can’t see anything holding the stock up to prevent it from testing those levels. At least not right now.
Naspers (NPN)
The support level shown two weeks ago has broken and it looks like the gap-close trade is on. Stop to entry and let it ride for now.
Remgro (REM)
R125 is a key level to watch on REM. A daily close below R125 will trigger a short trade. Some might see a head and shoulders top here… some might see a rounding top (depends just how much you squint your eyes to make sense of it). Either way, we think that a break of the key support will offer a great opportunity to get into a short trade around a level that confirms a medium-term trend change.
Shoprite (SHP)
Not the greatest of clearest setup here, but SHP could come off and test the R192 level again in what looks like it could be a rather large range. If R192 fails to hold as support, we are looking at a massive double top which would target around R130 if it plays out. Patience here. but keep it on the radar.
Sasol (SOL)
Perhaps a bit late to catch the short now so we will not chase. This chart just serves as a case study to show how effective simple trend line and range breaks can be to identify a changing trend (and trades of course).
Sibanye-Stillwater (SSW)
R31.79 coming up by the looks of it. That would probably be a good level to buy at to be honest, but until them we suppose we wait.
Transaction Capital (TCP)
TCP is another great example of a simple trend line being extremely useful. Now though, we see support around R35. Keep a close eye on that support because a break below that would likely target R26.80 and would make for a great short trade.
The Foschini Group (TFG)
Another stock, another key support level coming up. If TFG breaks below R118 on a daily close basis, odds are very good we’ll see R90.
*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 resource
