USDZAR

Look out below!

The markets got smashed last week and even managed to close the US session on the lows. Strangely, sentiment is not at an extreme and it seems that through all of this, retail investors and traders have been net buyers. To us, this sounds like more pain is on the way. So without too much pontification, let’s look at some charts and see what we can find (other than ‘look out below!’ signs nailed to pretty much everything).

Still a time to be careful

It’s been a good while since we lasted posted a weekly game plan and we thought that the time had come to wipe the dust off our blog and get to sharing the weekly game plan again. On that note, the last time we posted we indicated that we preferred to stay on the side-lines, but now we find ourselves asking if it is still a time to be careful, or not time to get back into the market?

Bigger picture

There are not many good looking setups on the local market for us this week, so we’ve decided to rather look at some bigger picture themes. On that note, last week we wrote about how the market is looking and feeling a little stretched, although it seems that we got it wrong. Overall, sentiment is neither extremely bullish or bearish at this stage and equity positioning by larger active funds is still mostly underweight.

Headed for new highs

The market has become very strange indeed. The trend is so strong and there are so many dip buyers around that it seems the part will never stop. Although, whenever there are a few down days, the mood turns really dark and a semi-panic seems to take over. This is one more thing that worries us when thinking with the longer-term hat on. Why are traders to extremely negative when the market ticks down only a few percent? How much is the average trader geared and long the market? What happens when the market pulls back 10%? What happens when the Fed actually hikes interest rates? And what happens if the Fed hikes rates and starts tapering at the same time? These are some of the questions that we are pondering. But for now, the show goes on and the bulls keep dancing. Buckle up, because we’re headed for new highs.

Purely a technical perspective

Our bullishness last week was clearly not the right call. Volatility has crept into the market and there is a lot of uncertainty around what happens next. Therefore, in order to clear our own minds of bias, we will be looking at markets from purely a technical perspective this week.

The bull is strong yet!

We saw some fear and panic… for about a whole week. Well, in truth, the institutional money didn’t even flinch. The market bounced hard. The Evergrande situation unfolding in China is still rather risky, although it seems that the CCP are doing a rather good job at a ‘controlled demolition’. They might be making an example of Evergrande in an effort to cool off property speculation in general. There have also been some large repurchase agreement (repo) activity over the weekend, which is indicative of monetary stimulus measures to prevent contagion into other sectors. For now it seems, with some help from central banks (as usual), that the bull is strong yet!

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