Weekly game plan
Every week needs a new plan! Markets change all the time. New fundamental drivers emerge, technical setups mature or fail and our trading plan must adjust in order to keep up with the ever changing environment. Here we will highlight some of the trade ideas that are generated within our client community so that you can stay on top of what our HCA trading community is looking out for and planning to trade at the beginning of each week.
Things are starting to get a little wild out there as we approach the U.S. elections. Most of the charts that we look at this week are or larger market indices. Volatility is likely to remain elevated for the rest of the year. We’re not quite ready to start buying the dip just yet, nor are we sure that we’ve even really seen the dip yet. A bit of a zoomed-out macro view this week.
Over the last few weeks we’ve shared some thoughts about the fundamental picture we are seeing, and thus fired off a few warnings about the sustainability of the tech rally. This week we’ll keep things simple and only consider the charts, without having the fundamentals interfere with our thinking.
Being overly bearish is bad for your health, so please take the this week’s game plan with a pinch of salt. Overall we are becoming more and more concerned with what we think is irrational exuberance in the market. We look at some of our concerns and identify some trading opportunities for the week ahead. We also have a look at some requested charts.
Over the last few weeks the tone of the Weekly game plan and the trade ideas coming out of the International outlook blogs have become somewhat more bearish. Whether or not we are completely missing the mark here is still to be seen, however we are becoming more and more concerned about the sustainability of the current developed market (particularly U.S.) rally.
Building on some of the thoughts we shared in our blog post last week (U.S. commentary), we want to start off the weekly game plan by urging caution. We need to remain ‘trend followers’ and keep dancing while the music is playing, but we must acknowledge the possibility that the carpet can be swept out from under us at any minute. Most importantly, we need to be ready to jump when the carpet is pulled so that we don’t fall flat on our faces… but also not spend the entire party just jumping up and down in the middle of where everyone else is trying to have a good time. It is best then to keep a flexible ‘everything is temporary’ mindset, and be open and ready to change our views when presented with evidence contrary to what we might think we know.
We’re not going to get into too much detail here today. The world is looking forward to a COVID-19 vaccine and we think that markets will likely continue to respond positively. On the home front, it seems that most of the lockdown restrictions are being lifted as well, which will likely positively boost selected sectors and stocks in the week ahead.
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.
After strong earnings reports from tech stocks in the U.S. and more rhetoric around continued stimulus, markets closed last week on a strong note. We’re sticking to the good old technicals for this week and highlighting some of the stocks that we have been watching.
During the last week we started seeing some signs of distress in the Nasdaq, with some heavyweights beginning to show a little bit of weakness. Our strategists put up two posts on the current outlook on the Nasdaq on the International Outlook blog, which showed some key support levels being tested and broken. With those in mind we are slightly more cautious this week.
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.
The world is mostly mad, but luckily our views and beliefs about the world around us has little to do with what is actually happening, and the key to moving forward is to respond appropriately to the external environment, regardless of whatever it is that we might believe. Our job as traders is now and has always been to simply follow the market. Therefore we look mostly at technical analysis again this week so that we stay unbiased.
This week we are looking at a few local charts from a technical perspective only. Sometimes we get a little caught up in the noise that comes with consuming news around the market. Thus, sometimes it is helpful to just block out all the noise and just look at the charts. The mantra we often have to repeat to ourselves as traders is ‘allow the market to lead’.
It’s no secret that this is probably one the most hated stock market rallies of all time. In fact, that is probably pretty accurate for the entire bull market since 2009, really. The question is when? Another good question is, is our idea of what fair value is anywhere near what it really is? In truth, we don’t really know how things will turn out. All we can do is trade the setups that we see and make sure that we manage risk accordingly.
If there is going to be COVID related fallout from the demonstrations, we should start seeing an uptick in COVID-19 cases around the world in the coming week or two. This will be an interesting metric to watch as it could potentially send half the world back to hard-lockdown. We’ve already seen the state of Florida (in the U.S.) record a record number of new cases last week. Should that trend continue and emerge in other states or even in other countries, we think that it could create a reasonable amount of fear in markets once more.
Perhaps that market is trading higher on Robinhood accounts fueled by free money from the U.S. government, or short covering leading to massive buying volume as bearish traders get caught with their hands in the cookie jar? From a fundamental perspective, it does not make sense to us how world markets can be trading towards the highs while the world is still in the process of collapsing.
It would seem that even though the world is feeling a little better about the coronavirus, fears and uncertainties around the trade relations between the U.S. and China are flaring up again. Moreover, it seems that relations between China and Hong Kong could be a negative catalyst that could bring some risk off sentiment into the market. Overall our feeling is still slanted toward bearishness.
It is sometimes difficult to remain objective when it comes to market analysis. The more we look at charts, the more bearish we become. This might not be the right outlook as it could just be various forms of biases that we are unable to overcome. The primary objective of any investor or trader is to remain objective and see things for what they are, not as what we would like for them to be.
The market mechanics are starting to feel broken again… Equities are halfway to completing a V-shaped recovery, Tech stocks in the US are green for the year (this part makes sense actually), Volatility is coming down fast and markets are calming down. All this while the global economy has basically shut down and literally millions upon millions of people around the world has lost their jobs…? Also, bitcoin halving taking place next week. Careful of the bull trap.
We are choosing to ignore the noise and focus on the charts so that we don’t get too swept up in the confusion and irrationality of the market. We do realise though that the economic fallout caused by the COVID-19 pandemic will very likely linger for some time, especially in South Africa. Exactly how this all turns out though, we have no idea. For now, we remain focused on short-term opportunities.
It feels as if we are on the edge of battle. The air is still and so thick with tension that it is hard to breathe in. Nonetheless, the market goes on. In fact, it is starting to offer some interesting opportunities to those who are patient. We look at the S&P500, USDZAR, Clicks, Shoprite, Sibanye and Anglo American.
First and foremost, we want to encourage everyone reading this to take social distancing seriously. As for trading; for now we are being very, very careful. Most of last week we hardly traded any swing-CFD positions and we expect that it will be the same in the coming week. We will not entirely sit out the week, but we will be very selective with our trades. Risk management is absolute.
We’re not sure where to start. We have ever seen anything like what has been happening over the last three weeks before. These truly are extraordinary times.The Fear & Greed Index hit 1 last week, the CBOE Volatility Index hit highs last seen in 1987 and 2008 with the highest print at 77.6. This was real, unfiltered panic. The question now is; is it over?
The last few weeks have been some of the most extreme times in recent market history, at least from our perspective. We’ve seen a pretty extreme sell off, largely driven by fears around the coronavirus. What is of even more concern to us is that the U.S. Federal Reserve Bank cut interest rates by 50 bps in an emergency rate cut. Historically, when the FED responds this drastically it is usually a sure sign that something big is happening.
We also saw that Chinese PMI numbers came in the lowest on record. In other words, lower manufacturing and production activity in China than even in the depths of the 2008/9 financial crisis. Lower than ever recorded. Considering that China now makes up almost 20% of the global economy and accounts for two-thirds of global growth, this record low PMI reading is truly concerning. The real question now is, when do factories come back online?
It is starting to feel a little like the roll-over we were on the lookout for in U.S. markets last week is beginning to happen. Gold is pushing a lot higher on the back of growing coronavirus concerns as Italy enters the early stages of lock-down due to the virus spreading within its borders rapidly. We’ve seen videos of scores of people queuing outside banks in China and rumours of Chinese banks not having liquidity for withdrawals. The situation is getting worse.
It just feels like the entire world is actively choosing to not believe that anything really bad is happening there. We’ve put a lot of thought into what our view needs to be on this topic and it is our feeling that we would rather be “the boy who cried wolf”, and thus make a few errors in an attempt to be extra-careful, before we join the rest of the crowd and just pretend that nothing is wrong.
Again, it’s hard to form a strong opinion on what is most likely to be the overall theme for the week ahead. The coronavirus is a serious issue and is impacting global markets and sentiment. The situation is confusing and scary. This is forcing money back into the the U.S. in a search for safety.
There is a lot that happened this past weekend! Brexit actually took place… the World Health Organisation (WHO) declared the Coronavirus a Public Health Emergency of International Concern. Our expectation is that we will see heavy losses in Commodities and Commodities stocks, specially industrial metals.
The news this past weekend has been dominated by the Coronavirus. It seems that the rate of infection is accelerating and that it is managing to reach other countries, with both Japan and Australia confirming cases of infection. Markets might react poorly.