Last week did not go as expected. We’d thought that after the FOMC rate decision on Wednesday, that the market would come under some pressure. Instead, the market rallied its face off for two days and only showed some weakness on Friday. Granted, the Friday weakness has us feeling a little pessimistic going into next week, but it is tough to be a bear at the moment. There are rather a few mixed signals on the macro front and many of the most seasoned traders and investors are at a loss for how to interpret this market. As for us, we are still sitting on a healthy portion of cash in the managed long-term portfolios for clients. That said, we are slowly starting to hunt for an entry point to start deploying some of the cash we have on the side-lines. This does not mean that we are going to charge into the market without any patience. We are happy to spend three to six months to attempt to time our entries and make sure that we are on the right side of the trend. In the very short term, and after Friday’s action, we once again start the week with bearish outlook. We’ll get into some of the reasoning below.
Bigger picture (Offshore trade ideas)
It’s tough to be a bear
Like we mentioned above, there are a lot of mixed signals in the macro world right now, but this is probably one of the last big bearish signals out there. The chart below shows the spread between BBB rated US corporate bond yields and 90-day US Treasury bill yields. It is interesting to note that the only other time these spreads were this low, was just before or during previous recessions and major bear markets. Does this mean the breakout from the downtrend we’ve seen over the past two weeks was a bull trap? Right now, we simply don’t know, but we certainly have to be open to the possibility that the end of the bear market has not yet come.
S&P 500 (SPY)
So, we’ve had the breakout from the downtrend and on Friday we saw the formation of a bearish candle setup. Our question at this stage is; does the market back test the trend break and establish a new bullish trend, or did we see a fake breakout and the market is going to push for new lows? We don’t really know right now and as we’ve mentioned above, deciphering the current state of the market is rather challenging at the moment. Thus, we have to be open to both possibilities. Should we see the $390 – $400 region hold well as support and a bounce form from those levels, we’d likely have to buy some stocks and back the market as it tries to establish a new bullish trend. Should the support fail, well, then of course we continue to sit and wait for better days. Markets are certainly not the easiest they have ever been, but they sure are interesting.
Brent Crude Oil
Oil is certainly not painting a bullish picture here either. Our thinking was that with the ‘return to business as usual’ transformation happening in China, we might see energy demand rise and thus oil prices (and commodity prices) rise. This would have been support for the overall bullish view. This is, however, not the case. Oil has broken the support we highlighted last week and has moved back into the downward sloping channel. It seems a rather safe bet to assume that oil goes on to make a new low from here.
Gold
Gold got hammered! It seems to be squarely stuck in the large range between (approximately) $1920 and $1676… and is heading back to the bottom of the range it seems.
S&P 500 Volatility Index (VIX)
It might be a good time to consider taking some call options on the VIX. There is still a lot of uncertainty out there and if what we’ve seen over the last few weeks does turn out to be a fake breakout and a bull trap, some VIX calls will do well to soothe the discomfort.
USDZAR
Our ZAR comments from last week still apply, although this week we’ve added upper and lower boundaries to the current range that the USDZAR has been trading. Look for a break above or below this range for a decent trade opportunity. More aggressive traders could trade the range, but we’d rather wait for a directional break to be on the safe side. Just be warned, keep a tight stop if you are going to trade the break… it has given a false signal to the downside once already.
U.S. Dollar Index (DXY)
DXY bounced hard off the support level. It needs a few more days of data to confirm that it is putting in a trend change, so it is definitely worth watching very carefully in the week ahead.
South African trade ideas
JSE Top 40 Index (ALSI)
Still not tradeable signal for us, but it is worth watching that steep upward sloping trendline for a potential trade trigger. It’s tough being a bear, but maybe, just maybe being a bear is the right call?
Anglo American PLC (AGL)
And in complete contradiction to our comments above (on the ALSI), we think that taking a long off this trendline on AGL seems like a very nice setup. It has everything you need; a bounce off of support, bullish divergence, a Dow theory uptrend, and of course the ‘China back to business’ narrative. If the bear market is over, the Fed has pivoted and the bull market is back, then commodities will do well and AGL is looking ripe for a long entry.
Anglo American Platinum (AMS)
We pointed out AMS as a buy last week and so far it seems to be on track. Trailing stop losses usually work best to capture as much of a new potential trend as possible. So be a little patient, but don’t hold on to it if it drops below entry.
AngloGold Ashanti (ANG)
This is the last of the Anglo’s, we promise! ANG is right on a key level though… odds are good that it gets smoked on Monday morning after the hammering Gold took. So, this might be a good short trade to put a trailing stop loss on.
Coronation Fund Managers (CML)
Another ‘bull is back in town’ play here on CML. We pointed out a long trade here last week that is off to a good start. The same rules apply though; don’t hang on to it if it dips below entry, but give it time and space to work with trailing stop loss.
Sibanye-Stillwater (SSW)
Just purely looking at the chart, SSW looks like a great long from here. Unfortunately, Gold was decimated on Friday and although SSW is far more than just gold these days, we don’t think it will be able to escape the pain. Let’s see how this plays out because the chart is telling us long, but logic is telling us short.
Joining HCA trading
Come find out why we ranked as number one for traditional investors in South Africa. 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.
