Markets bounced hard in the second half of last week. It’s almost hard to believe how fast things are changing in the current landscape. Although there are so very many reasons to be cautious, if not flat out bearish, the market is just pulling its ears back and making its way higher despite the conditions of the world around it. Thus, given the strong footing the market ended on last week, and of course the charts, we think that we’ll likely see new highs in the week ahead.
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.
The weather in the northern parts of South Africa is likely to be a little wild in the week ahead. We just hope that the hurricane that has made landfall in Mozambique does not cause large scale damage. Spending the week indoors, sadly, is nothing new thanks to lockdown. Now we just have to hope that the coal stays dry so that we don’t have electricity disruptions. These are strange times to be living in to be sure. At least we have markets to look at and keep us busy while a hurricane and a virus rage outside.
Well, technically the Santa rally is only really the period between Christmas and New Years, although traders have been ‘front running’ this seasonality a little over the last few years. Furthermore, from what we’ve seen on the newswires over the weekend, it seems that another round US Fed stimulus is almost certainly going to be finalised before US markets open on Monday. Nothing like a freshly minted $900 billion to get markets into the festive mood.
The exuberance of markets can never be underestimated. “Stonks only go up” has become a meme. But we know that memes have the power to influence millions of people. As long as the market is trading from vaccine headline to vaccine headline, we can expect that markets will probably keep pushing higher and people will likely keep chanting “stonks only go up”.
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.
Last week, after a strong start to the week, we saw the moves fade and the rest of the week resolve in directionless action on the major indices. Locally our banks popped well, although started pulling back a little in the second half of the week. For the coming week, we see opportunities in Gold miners for high risk-reward long positions at the start of the week. With some luck we’ll see decent pullbacks in the banks for good long setups in the second half of the week.
Finally the US election is behind us! We’ll still see how far Trump goes to contest the election outcome, but so far it seems the the courts are not entertaining the idea. So ok, Biden wins, what now? It is reasonable to expect that more COVID related stimulus will done and the Dollar should keep weakening on that. This likely leads to more ZAR strength and might direct some investment flows into emerging markets.
Thinking about the week ahead and the craziness that is about to unfold with the US elections, my initial thought was that there would not be too much to do. In fact, I’d been planning to basically just put out a warning about this week and recommending that we just keep it small and keep it tight. To a large extent that is still what I am doing, because it’s going to be wild out there. That said, there are some charts and ideas floating around inside the HCA trading community that are worth sharing. Just keep those stops tight and the trades small. The money is made by being around long enough to capitalise when it’s easy, and allowing the market trends to do the work.
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’.