The events of the last week have been nothing short of horrific. But once again, we have shown that the South African spirit cannot be broken! People of all kinds have rallied to not only protect their communities and loved ones, but also to rebuild, repair and bring support to those most severely impacted by the attempted insurrection. Our ability to indiscriminately band together in the face of adversity is perhaps our nation’s greatest strength. And to that end, I want to use this week’s post to encourage you to support KZN this Mandela Day.
Over the last few weeks, markets have remained rather strong in the face of many challenges. Last week we finally got confirmation that more stimulus cheques are in the mail for Americans, although it seems that $1.9 trillion was not enough to help equity indices end the week in the green. Risks remain elevated and volatility is stubbornly not abating, thus we are starting to think that it is time for a pullback. There are a few long indeas in precious metals and commodities, but for the most part, caution is advised.
This week I am keeping things a little less ‘opinion’ and focusing just on technical trade ideas. Well, trying to keep opinion out of it at least and just following what the chart says. So let’s get into it.
Fresh new stimulus cheques in mail and record high options trading volumes. The market is a very confusing place right now to be honest. Well, maybe not actually. It’s fairly obvious that stimulus money is finding its way to extremely speculative trading instruments (which includes Bitcoin) and that the greed ruling markets at the moment is firmly cemented in place. Even with all this additional money in the system diluting its value, the mighty Dollar is fighting back and strengthening.
Very often it’s better to not listen to the news, or the hype of all the mad things happening in the world around us. Most of the time, it’s better to just sit down and focus on the things that we can measure. So to a large extend we try to do that this week, although we must admit the the blue wave in the U.S. is probably the primary driver behind the strength we saw last week. It’s very likely going to be the source of a whole lot more strength in the week ahead.
It seems that there are a ton of people out there trading the oil price in some way or another. Most people of course have either been getting involved with Sasol or have been thinking about it. We’ve received a ton of requests from all over, from people asking about the oil price and particularly about Sasol.
We suspect that over the next few weeks and months, mainstream media is going to get swept up in the ‘all about Bitcoin’ narrative. More importantly, Thanksgiving sets off a number of seasonal patterns as well. We need to combine several of them for one trade.
Generally markets are feeling fairly good going into next week and the weekly game plan is centered around buying some pullbacks in the banks and avoiding long positions in resources and precious metals. We have been seeing good old fashioned sector rotation locally, with funds flowing into banks and retailers and seemingly local property as well. This is likely being driven by investors looking for value, of which there is much to be found among the ‘locals’.
There does not seem to be too many good setups around at this stage, and the only relatively attractive setups are slightly longer-term in nature. That is, on a swing trading basis were trades are taken for a number of weeks, rather than just a few days or hours. A catalyst might come in the form of Trump signing an executive order to provide further coronavirus relief directly to US households.
One of the things that we’ve been thinking about over the last few weeks is; the past. We find ourselves wondering how similar this current situation is to the one back in 2009/10. Could the monetary stimulus just refuel the rally and keep the market (first) and the world economy (second) pushing higher and harder? Possibly, yes.