We’re going to start off this weeks post by telling our readers the same thing we’ve been telling our clients for over a year now. Be careful, trade smaller, trade less often, protect your capital. The market is wild and will likely stay wild for a while. Trust us, taking chunky losses is scary and will almost certainly lead to you losing the opportunity to make the big trades when they finally come around. Be patient and conservative. The bear is here and is not taking prisoners.
In other news, we have something new and exciting up our sleeves. Well, at least we think so…
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Bigger picture (Offshore trade ideas)
S&P 500 (SPY)
The power of simple trendlines… So, now SPY has broken the short-term uptrend, it will likely come back to test the medium-term downtrend. Should we see a bounce off the medium-term downward sloping trendline, well good times are here again. If not though, which is our expectation, we might see SPY make a push for recent (Oct 22) lows. The way we see it, this might be the final flush out before the bear market ends. That said, this final flush out could be really ugly. Let’s see what happens now that the bear is here.
DAX Index (DAX)
We don’t share the DAX chart too often, but it is still a rather significant market to keep an eye on. We note that it is now also testing the short-term uptrend and by all indications could be a great short here to that yellow support line as a first target. Should the yellow support fail (we expect it too), perhaps we see if come down to 13750 (second target). The bear is here, so who knows how much ground the Germans will lose here.
Nasdaq (QQQ)
Not too much to add here that we didn’t already say in SPY commentary above. Just another confirmation that the bear is here and is not happy. The downside here is a bit bigger in percentage terms, so likely an easier short trade with a bigger risk-reward.
Hang Send Index (HSI)
HSI has broken its short-term uptrend as well. In fact, it did so some time ago already. Perhaps the Chinese market is currently the best leading indicator we have of what to expect for the rest of the world. Keep an eye on Chinese Manufacturing PMI data due out on Wednesday morning. Trend followers here would expect to see new lows. Not many will want to believe that is possible, but trends don’t really care what we want to believe. The bear is here and it’ll eat your breakfast if you’re not careful.
Gold
The world is a confusing place. You’d expect Gold to be rallying with so much pressure on equities. Although, here we see again that when the bear is here, people sell everything for some liquidity. We saw in 2020 that when the liquidity crunch and ‘crash’ is upon us, everything sells off and only after the initial panic is over does Gold start to rally. Let’s hope that is the case here.
Brent Crude Oil
We speak about oil a lot, so we won’t re-explain what is happening in this chart. Nonetheless, oil is still sort of in no man’s land. We remain bullish.
U.S. Dollar Index (DXY)
The 103.70 level has broken. It’s finding some resistance around 105.30, but one that goes, the sky is the limit! DXY is looking set for plenty of strength, which of course will add fuel to the bearish fire. Interesting times ahead.
USDZAR
Don’t shoot the messenger please. We’ve dusted off our USDZAR weekly chart posted many month ago. Just a gentle reminder that trends are trends and it takes a whole lot of fundamental change to change long-term trends. R21 to the USD? It seemed mad a year ago, it seems almost certain now.
South African trade ideas
JSE Top 40 Index (ALSI)
Uhm, well, this is not good. The question is now; how far to the bottom? Obviously there has been some bad news making the rounds and things have actually never really looked much worse for South Africa, so markets coming off hard completely makes sense. But how far and how fast does this bearish move go? We can’t answer that, but we do know that getting out of the way is a good idea.64k as a first target? Probably.
Anglo American (AGL)
Trend breaks don’t get much cleaner than that. Break, test, confirm. The bear is here and has taken its pound of flesh. R600 could be support, but if/when it breaks, R510 is the next stop.
Compagnie Financiere Richemont (CFR)
Another uptrend about to break. CFR looking like it wants to come and test support at R239. Great risk-reward on the short trade as well. Make sure you keep a stop above the recent consolidation high though. A weaker ZAR and some good news from China could keep this stock moving up. It’s a probabilities game, so even though the bear is here and this stock offers a great risk-reward on the short, don’t let wanting to ‘be right’ prevent you from stopping out if you are on the wrong side. That said, we like the short here.
Naspers (NPN)
We might have said that breaks don’t get much better than this for AGL, but NPN might just take that title. We’ve watched this consolidation for a little while and we saw it break, get tested and push for a new low. The bear is here and is coming to touch you on your Naspers. R2785 and R2330 are first and second targets for the short trade here.
Sanlam (SLM)
Initially we’d said that we expect SLM to break higher. We take the opportunity to take that back and change our view. R59 has been solid resistance and a break above it should be bought, but it’s not looking like it is going to break. We therefore adjust our target to R51 with a stop above R59.
Sibanye-Stillwater (SSW)
This chart, when originally posted around a month ago, got a lot of flack. People did not like the idea of SSW completely breaking down and printing lows around R32. Again, we ask that you not shoot the messenger. Things are not looking so sexy for SSW. Earnings are out on Tuesday, so let’s see if that changes the tide here. It could, so be ready to react quickly once whatever the news is, breaks.
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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.
