Market Commentary & Trading Research [16 October 2019]

Market Commentary & Trading Research [16 October 2019]

On Tuesday, the JSE Top 40 spot index managed to advance however failed to break above the 49400 level which has served as a cap over the two prior sessions. While we were up 280 points or 0.57%, the local market lagged global equities which advanced strongly as further progress appeared to have been made with regard to Brexit negotiations help European markets while the start of US earnings season saw all major US indices take a stab at record highs. Local movers were as follows:

European Stocks Rebound on Smooth Brexit Hopes: European stock markets closed deeply in the green on Tuesday, boosted by optimism that the UK is moving closer to a smooth exit from the European Union, after Bloomberg reported that there is already a draft Brexit deal between UK and EU negotiators. Also, investors’ sentiment improved as the US earnings season kicked off with stronger than expected earnings. The DAX 30 jumped 143 points, or 1.2% to 12,630, the highest since July 4th; the CAC 40 rose 59 points, or 1.1% to 5,702, its highest close since December 2007; the FTSE MIB gained 267 points, or 1.2% to 22,365, the highest since June 2018; and the IBEX 35 went up 110 points, or 1.2% to 9,356, the highest since mid-July; while the FTSE 100 finished near the flat line at 7,212.

US Stocks Surge on Upbeat Bank Earnings: Wall Street closed deeply in the green, as earnings season kicked off amid a partial US-China trade deal. The nation’s largest banks reported third quarter results on Tuesday, with JP Morgan standing out and nuding the sector with better-than-expected numbers from its consumer banking division. Meanwhile, Wells Fargo also rose after beating revenue forecasts, while Citigroup also posted upbeat figures. In contrast, Goldman Sachs profits declined sharply dragged by its M&A division and lower debt and equity underwriting fees. On the macro side, the IMF published its World Economic Outlook and downwardly revised its global economic growth forecast to 3%, the slowest pace since the 2008 financial crisis. The Dow Jones jumped 238 points or 0.9%. The S&P 500 climbed 30 points or 1%. The Nasdaq rose 100 points or 1.2%. –

JSE Top 40: With US equities strong overnight, and Asian stocks higher this morning, it could be expected that the 3-day resistance will be broken. I continue to watch 49700 and 49866 as a resistance level. Following that, 50067 should act as a short term cap.

USDZAR: The pair has broken the incline support going back to late July. The big level to watch is 14.98 – a level which we have not remained above for long periods of time over the last 14 months.

US 10 Year Bond Yield: Testing breakout level going back to 18 April. Daily Chart Below:

US 10 Year Bond Yield (Weekly Chart): Triple Bottom – rising yields is my preferred view over the long term.

Altria: Compelling valuation metrics on this global tobacco producer.

PE: 13x, Dividend Yield of 8% (highest level in at least 10 years), EV/EBITDA at lower end of long term range.

Share down from $75 to $43 over 28 months.

Time To Sell Utilities?

US Utilities SPDR XLU ETF – Monthly. Price at Nov-2000 trend line resistance. Higher interest rates could cap further upside.

Treasuries and Gold – Correlated.

Bonds (TLT) lower, Gold (GLD) lower.

Keep your eye the long term chart for gold. Resistance trend line from the all time highs. Speculative longs unwinding from 20-year highs! – Not good for Gold.

On the other hand, Copper Speculative Longs at a nearly 25 year low.

The price of copper remains within a large term upward channel.

Monthly chart below:

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