Well, the time has come for U.S. corporate earnings to show us the way. We’ve mentioned a few times, both here on the blog and in various other media appearances, that the near-term future of the market is likely to be determined by how the upcoming U.S. earnings season goes. Well, now it is here and we’re about to find out. The Dollar (DXY) has been super strong for some time now and we’re finally going to see if U.S. domiciled companies are starting to ‘feel the heat’ and are seeing a reduction in earnings. Naturally we have our view, that yes, things are about to get sicey… but that doesn’t necessarily mean that our view is right. Regardless of whether our view going into the one earnings season to rule them all is right or not, we are certain that this is a very important one.
The market is somewhat in a ‘bad news is good news’ cycle, so weak earnings could get the Fed pivotooor’s excited and might cause a bit of a false rally situation, so be careful because it’s going to be tricky.
Some highlights in terms of upcoming earnings next week:
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Offshore trade ideas (bigger picture)
S&P 500 (SPY)
Aah the good old SPY chart. From the epic short squeeze of the ages on Thursday, to reversing the gains on Friday and now into the one earnings season to rule them all… it’s is going to stay pretty wild an volatile out there! SPY is starting to get really close to our price target as well, so we are basically just sitting back and watching at this point. Our key focus here is whether or not the pre-covid highs can act as a support to the market or not. It’s hard to believe that if most markets test their pre-covid highs, they will be off the highs in the region of -30% (give or take). Historically when markets are down this much from the highs, it has been great buying opportunities for longer-term investors. Therefore it does make sense to sit up and take note, maybe even to start nibbling a little. The risk here is really that we see the ‘greater market’ pull back as much as 50%. Keep in mind that a bear market of that scale has not happened since the 1929 great depression… but hey, anything is possible right? Either way, -30% or -50%, long-term buyers of quality stocks and broader market indices (via Funds or ETFs) are very likely to see strong positive returns over 5 years (and stronger still over 10 years) if they enter the market in this region. Perhaps there is more downside, perhaps there is not, but SPY near our target is a buy signal for us. That said, don’t throw the kitchen sink at it. Start slowly and deploy just a little capital per week. Slow and steady wins the race.
Also note that we are making a big distinction here between short-term trading and long-term investing. On the short-term side, yes, we are bears. We envision the market coming down at least another 5% and for the market to remain excessively volatile. We would not even be surprised if we saw a short, sharp selloff in excess of 10% or 15%, lasting only a few weeks. On the long-term side, we are holding a completely open mind about how the future plays out. Here we acknowledge that real gains are made by holding high quality stocks over long period of time and we thing that where prices are now, given historical context and the forward looking, long-term nature of markets, they are starting to look rather attractive for investors with a long-term outlook. This means that if you are happy to park money in the market for the next 10 years or more, now is a good time to start buying. Yes, there will likely be more downside and yes, you might be offside on your investments for a year or two from here, but in 10 years from now you will be happy you started now.
Also, contact us if you are interested in investing in our long-term portfolios. We’ve done well. Latest fact sheets will be out later this week. In the meantime, here are last quarters fact sheets for both local and offshore portfolios.
Philadelphia Semiconductor Index (SOX)
We’ve seen in the past that SOX can act as a bit of a leader to QQQ. We note now that SOX has almost reached the pre-covid high. Where to from there is the question? We suspect that the one earnings season to rule them all will give us an answer fairly quickly.
Nasdaq (QQQ)
Not too much to add here really. Just interesting to see that the pre-covid highs are getting pretty close now.
DAX Index (DAX)
Interesting to see how support, once broken, becomes resistance.
S&P 500 Volatility Index (VIX)
As we mentioned once or twice before, things will get really crazy if the VIX breaks out above 35/36. So let’s see what this coming week holds With some luck we see the VIX explode higher and markets head straight down. We have buying to do after all. That said, we are now at the top of the recent VIX range, so maybe some stronger than expected U.S. corporate earnings can get it down closer to the bottom of the range again in coming weeks? We’re not placing any trades right now, but we are interested to see how this plays out.
U.S. Dollar Index (DXY)
Ladies and gentlemen, we present to you, the source of much of our pain. And we note that the trend is still very much up. And add that as long as that is the case, it’s going to keep getting more difficult.
Brent Crude Oil
Yes we’re still bullish energy, and yes we are aware that hedge funds have been the largest energy sellers over the last few weeks, and yes we think that this chart has gotten a bit messy and that we need to clear all our annotations and start again (as now the chart is giving too many worthless signals). So we’ll be redoing this chart over the next week and hopefully be able to provide some better guidance next week.
South African trade ideas
JSE Top 40 index (ALSI)
While the one earnings season to rule them all is raging away in the U.S., local markets aren’t exactly going to be much easier. It should be no surprise that we maintain our downside target on the ALSI and expect some choppy and difficult markets in the coming week. Keeping that in mind, perhaps the best course of action for the traders out there is to trade smaller, trade less and protect that capital. It’s been a rough year and will probably stay a rough year. Protecting capital is more important that anything else. Believe us, we’ve learned that the hard way.
Growthpoint Properties (GRT)
Do you believe in shooting stars? This presents a short trade opportunity with a stop above the Friday highs and a target around R11.60.
Capitec (CPI)
When that support broke, it broke with all the glory and all the horrors of… a bear market? That analogy didn’t go anywhere… and neither did the support/resistance level around R1900. Perhaps we can trade short here for another leg down?
Compagnie Financiere Richemont (CFR)
Just a reminder that this Head and Shoulders pattern exists and if it plays out, horrible things will happen. The price target for this pattern is something like R50. There is a low probability of it actually playing out, but something to keep on the radar nonetheless.
Anheuser-Busch Inbev (ANH)
We pointed ANH out last week and reiterate our short idea this week. The full price target here on the short is around R620. That is a mighty long way down, so it will take some time. Keep in mind this is a rather illiquid stock, despite its size and price. Thus, keep your position small and stay rather patient with it.
AngloGold Ashanti (ANG)
ANG did not give a single, uhm, freckle about our long trade idea last week. It never managed to get above the resistance zone and reversed rather sharply. We go back to waiting for a new setup on this one.
Anglo American Platinum (AMS)
Firm down trend in place, relief rally into a tight range, good old fashioned bearish divergence… what’s not to like? This is a rather high risk-reward setup as well.
Traders meetup
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 |
| Forex | 0.40% | 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.
