Market Commentary and Technical Research [14-October-2019]

Market Commentary and Technical Research [14-October-2019]

Shares on the JSE ended the week on a strong note, with the All Share Index adding 2.86% for the 5 trading days which was a gain of 1543 points. One of the key drivers here being the perceived progress in relation to US trade talks which lifted risk assets globally while simultaneously causing the demand for safe-haven assets to wane. For the week, some of the major movers included: Clicks +14.34%, Sasol +12.27%, Mediclinic International 9.93%, Anglo American plc +9.86% and Quilter 8.29% while laggards included Reinet Investments -2.08%, British American Tobacco -2.94%, Harmony Gold -3.30%, Nepi Rockcastle -3.50% and Telkom -3.78%.

European Shares End Week in a Positive Note: European stock markets closed sharply in the green on Friday, the third straight session of gains, bolstered by optimism about US-China trade talks and Brexit. US President Trump is expected to receive the Chinese Vice Premier Liu He at the White House later in the day to finalize a two-day of high-level trade talks, with investors expecting an announcement of some sort of a trade deal. Also, EU spokesperson Mina Andreeva said the EU and the UK were continuing to work toward a deal, and that talks had been “constructive”. The DAX 30 surged 347 points, or 2.9% to 12,512, its highest close since July 24th; the FTSE 100 added 61 points, or 0.8% to 7,247; the CAC 40 rose 96 points, or 1.7% to 5,665; the IBEX 35 gained 169 points, or 1.9% to 9,274; the highest since July 25th; and the FTSE MIB advanced 409 points, or 1.9% to a one-month high of 22,165. – TradingEconomics.com

US Stocks Rally on Trade Deal News: Wall Street extended gains on Friday, as trade negotiations between the US and China resumed and Bloomberg News reported the two sides struck a partial deal. “Good things are happening at China Trade Talk Meeting,” tweeted President Trump early in the morning ahead of a meeting with Vice Premier Liu. On the indicators front, consumer sentiment improved in October, according to a University of Michigan survey. On the corporate side, shares of Caterpillar surged in anticipation of a trade deal. Meanwhile, crude oil prices gained after an Iranian tanker near Saudi Arabia suffered damages. The Dow Jones surged 320 points or 1.2%. The S&P 500 jumped 32 points or 1.1%. The Nasdaq climbed 106 points or 1.3%. – TradingEconomics.com

This morning in the Asia, most major major markets are up strongly. In economic data, Chinese exports fell the most in 7 Months with exports from China dropping 3.2 percent year-on-year to USD 218.12 billion in September 2019, worse than market consensus of a 3 percent fall, the biggest fall since February, and following a 1 percent decline in August.

Imports to China slumped 8.5 percent from a year earlier in September 2019, compared to market consensus of a 5.2 percent fall and after a 5.6 percent drop in August. This was the fifth straight month of yearly decrease in imports, as purchases fell for unwrought copper (-14.6%), steel products (-7.6%), rare earths (-27.9%), rubber (-10%), and refined products (-26.5%). In contrast, iron ore imports jumped 93.47% to the highest in 20 months of 99.36 million tonnes, fueled by firm demand at steel mills and stable shipments from big miners. Also, purchases grew for: crude oil (10.8%), coal (20.5%), and natural gas (7.3%). In addition, imports of soybeans grew 2.3%.

The Rand trades at 14.73 versus the US Dollar, 18.58 versus the Pound and 16.25 versus the Euro.

Technical Analysis Research

Please Note: The analysis is divided into 3 time frames/categories. 

Long Term Strategic: Geared toward investors mostly seeking a view with regard to equity portfolio positioning. Weekly and monthly charts are used in the analysis.

Medium Term Opportunistic: Geared toward investors and traders seeking a view and looking to take advantage of opportunities ranging from 4 weeks to 6 months. Daily and weekly charts are used in the analysis.

Short Term Active: Geared toward traders looking to take advantage of short term volatility with time frames ranging from 3 days to 4 weeks. The chart time frames used to assess and analyze opportunities range from 5-minutes to Daily.

US Treasuries (TLT ETF) vs Global Equities (ACWI ETF): Recently, US bond yields have risen as concerns over a US/China trade deal subsided and equities caught a bid. Taking a step back and observing the relative monthly chart of US Treasuries (TLT) vs the All Country World Equity ETF (ACWI), we note the trend line resistance going back to March 2009 holding with the price being rejected at this level, reflecting the longer term support for equities having remained in place. We also see the trend line support which goes back to June 2008 potentially becoming a resistance level – should the price make a shift below it. Should we see the price move below the support line (indicated by blue arrow on chart) this would enhance the under-performance of bonds versus equities.

Unum Capital Global Safe-Haven Index: – Over the last month we have highlighted this index as a guide to assessing which environment we could see (risk on or risk off). As previously analyzed, the index is now rolling over, signaling demand for safe-haven assets continue to wane following a sharp run up from late April to mid-August.

Global SHIX Daily Chart:

Global SHIX Monthly Chart:

JSE Top 40 Index (Spot): The index has advanced strongly from our last buy/long call on 03-October at 48232. While we saw the index dip slightly lowers, spending a day or two below the recommended buy zone, the ‘swing’ higher eventually unfolded with a very strong move higher throughout the course of last week. At current levels, the candle structure remains strong although I am less enthusiastic to call a buy/long at current levels that I was 11 days ago. Which levels to watch? I see 49700 as a resistance zone with the 200-day MA at 49832 just above that. Following that 50066 may also act a a short term cap. Fresh longs, I would wait for the price to pull back to 48650 for a new short term entry. The RSI has recently crossed over into bullish territory and now trades at 52 while turning up.

Pause For Implats? – Monthly Chart: During October 2008 and June 2013 we saw the price price support at around R95 to R100. During this cycle the price is re-testing these support levels with the price, on a short term basis, finding sellers at the 104 to 107 level. We may now see a scenario where the prior support turns into a temporary resistance zone.

Sappi: Monthly Chart. Long-time readers of our research may recall the warning provided on Sappi during February 2017 at a price of R84.75 in a note titled ‘Sappi’s Share Slowdown’where the technical triple top formation, based on the monthly chart provided us with insight into potential future weakness. The price has slumped since, trading sub-R40.

Today we again take a look at the monthly chart where we notice the price trading at a key support zone – the incline support line going back to March 2009 as well as the horizontal support zone seen in April/May 2005 as well as December 2014 and July 2015. For long term investors, keep the 35/37 level in mind.

Richemont: I recently had a short term trade idea on CFR – a short/sell from above R118. Since then we have seen the price retreat and today we take a look at the monthly chart to determine which levels to monitor over the medium to long term. Look out for a potential trade note, there may also be a short term opportunity on the daily chart.

Richemont Monthly: The price has breached the downward trend line going back to February 2019. The level to watch at present is 10457c – weaker price action below this level and we could see sub-R94 as a next trading zone. The monthly chart Relative Strength Index (upper panel) also appears to be in a weaker trend and now trades below the 50 level (neutral zone). In addition, the Money Flow Index (lower panel) is also trending weaker and showing a downside bias, suggesting long term outflows.

JSE Gold Index (Monthly Chart): My technical view is picking up the potential for price action similar to prior periods, that being January/February 2013 and September 2016 (marked 1 and 2 on the monthly chart). Which level do we watch for a potential breakdown? 2160 on J150 (JSE Gold Mining Index).

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