Research: Market Commentary, Statistical Data, Technical Insights and Trade Ideas
If you are, like me, having a tough time navigating this market, then I might have a clue as to why. I finally found out whose been beating me!
Despite commencing Friday’s trading session in the red, driven by a sell-off in US equities overnight on the back of concerns around a second wave of Covid-19, the JSE All Share Index managed a positive close for the day, clawing back 344 points or 0.65%. In a similar vein, the Top 40 index added 355 points or 0.73%. Leading sectors included Telecoms (+2.18%), Insurers (+1.69%) and Banks (+1.51%) while laggards included the Gold sector (-3.28%), Mid Caps (+0.02%) and Platinum and Precious Metals (+0.17%). It was a second day of gains for the US Dollar as the greenback once again found itself regarded as a safe-haven amidst a softening of the recent risk sentiment. The continued bid of the US Dollar saw both G10 and EMFX remain under pressure with a notable exception being the Mexican Peso (USDMXN -1.21%) mid-way through Friday’s US trading session. The Rand traded around 16.99 and 17.17 for mich of the session closing close to the upper end of the range. The Turkish Lira was flat at around 6.83 while the Brazilian Real lost ground as USDBRL advanced 2% to trade at 5.08. In G10 FX, the Canadian Dollar continued to trade near a two-week low amid the prior day’s sharp drop in oil prices. The Pound came off a 3-month high, as safe-haven demand spurred the US Dollar while UK GDP declined by a 20.4% in April, the largest month-on-month decline on record. Over in European equities space, equities were broadly positive, rebounding from the worst day since March – a session which saw the Euro Stoxx 50 recovery by 0.20%, the FTSE by 0.47%, the CAC 40 by 0.49% while the German DAX lagged region with a 0.18% decline.
SA Factor: SA Inc under-performs versus Defensive for the week, but ends the session higher. On a relative basis, a basket of SA-focused shares under-performed a basket of defensive shares form much of the week as investors booked profits following a strong run from the third week of May. This can be seen on a custom chart plotting General Retailers, Financial 15 and Property versus the Gold Sector, Healthcare, Telecoms and BTI.
Daily % Changes (12 June 2020)
Weekly % Changes (08 – 12 June 2020)
Distance from 1-Week High and 1-Week Low
US: Themes vs SPY (Relative Performance)
US: Theme Performance
S&P500 Low Volatility (SPLV) ETF vs S&P500 (SPY) ETF
As could be expected post a significant sell-off, the S&P500 Low Volatility ETF has, on a relative basis, under-performed the S&P500 (SPY) ETF. Since 26 May, we have however started to see this under-performance stabilize with the relative price attempting to regain the 8-EMA. What’s also noticeable is the bullish divergence as per the Relative Strength Index (RSI) – lower panel. This may signal a loss of downside momentum and forewarn of a potential change in trend.
Global Safe-Haven Index vs S&P500 Futures (Relative Ratio Chart)
On a relative basis, safe-havens have out-performed risk assets for the past week. This is highlighted by the relative chart, using our custom Global Safe-Haven Index (SHIX) versus the S&P500 E-mini Futures (as a wide proxy for risk assets). Support was found on support level 3 (S3) as well as the flat 200-day simple moving average. The last close (Friday, 12 June) has seen the relative price closing above both the 8 and 21-day exponential moving average, both of which have started to lose downside momentum. Going forward (with a short to medium term view), I am expecting the Global Safe-Haven Index to challenge risk assets.
JSE Top 40
Top 40 (J200) | As mentioned last week, following a very rapid 50% bounce off the March lows, traders should take caution and that returns from then onward would be hard to come by. This past week saw a small unwind of the bullish sentiment with markets having their worst week since March. My current view is that you’re a short term trader, then long entries may not have an attractive risk/reward. Friday’s close was positive, with the candle structure seeing a long tail, similar to Thursday however a period of consolidation may be due. A loss of 48400-48100 would see 47560 open up as a target. Looking back at the first five months of this year, we’ve navigated the broader market well. During Jan-2020 my technical perspective picked up that the Top 40 price action and chart structure was very similar to the August 2018 period. We then saw a drop, with Covid-19 being a fundamental catalyst to drive prices lower. On 18-March 2020 whilst markets were bleeding we were strong advocates of phased buying noting that ‘Red Equals Opportunity”. If you acted on both of these calls, you will have made a ton of money. Take caution, because risk happens fast. And not forgetting, know your time frame!
20 January 2020 – Risk Flagged
18 March 2020 – Opportunity Flagged
Woolworths Holdings (WHL)
The week before last the share made a false upside break of the gradually upward trending channel. We have since seen a pullback with the price nearing the horizontal level of interest which is also the prior breakout zone (yellow shaded area). This comes in at around 3035-3095c and provides a potential accumulation zone for short term ‘range traders’. I’d like to see the price hold at at this zone, for a potential move back up to 3400c. Note: the 50-day EMA has started to gradually turn higher, suggesting a shift in the medium term trend from sideways consolidation to bullish. Here, we may see a back-test to below the 50-EMA before a regaining of this level.
SAP has performed well for us, advancing from just above 2100c (at the beginning of May) to the recent high of 3553c. Last week’s 3-day pullback saw the price find support at the rising 21-day EMA which is just above the rising 50-day EMA. This is also just above the breakout zone which is often a ‘level of interest’ for traders looking for a fresh accumulation zone. Provisionally, I’m monitoring 2680c down to 2590c as a opportunity once again get ‘long’. Stop-loss: 2450c.
Impala Platinum (IMP)
IMP was one of a few shares that recently breached their incline support following a sharp run-up. As we’ve seen previously (for e.g. DRD Gold and Sasol), a break of the incline is not necessarily an immediate sell signal, but rather an opportunity to wait for a pullback for re-entry to ride the potentially sharp back-test. As at Friday’s close, the ‘buy/long’ risk-to-reward remained unattractive with a downside bias. Remember the share is up from 4500c in March (buy/long recommendation at 5200c on 18 March) to 13500c last week, and if you know me by know, you’ll know that I’m not in favour of chasing after a massive run-up. So where would I be interested on the long side? The 9800c to 10000c level has proven to be a zone that attracted buyers in the past, and if history is anything to go by, may prove to be the case once again. On the chart you’ll notice my price action scenario (annotations in red and green). Provisional levels are as follows: Accumulation 9750c – 9900c. Should the price move against us, a stop-loss of 9300c is recommended. Take Profit Target: 11800c-12200c.
Absa Group ABG
I’m often cautious when prices have run too hard. Take ABG that made a move from 7500c-7600c all the way to 10500c. We had a long at 7691c with the expectation that the share would merely just add a few Rands – of course – it went much higher than expected. Pullbacks, which we’re seeing now, is healthy and provides another opportunity to get long. If we pull back into 8500c down to 8400c (with strong bids) then I would recommend a fresh long. Stop: 8230c.
African Rainbow Minerals (ARI)
ARI has started to retreat from the major supply zone of 18000c-19200c. The recent consolidation top has been broken with the price below the 8-day EMA. Also noticeable is the price (17232c) currently extended well above the 50-day EMA (14983c). I’m expecting a moving back to the pivot (P) 15642c, followed by 15000c. Caution, time for a further pullback and consolidation on this name.
Aspen Pharmacare APN
Our last long on APN was at 11400c. The price ran up into 15511c and has since breached the incline support. Now below the 8-EMA, I’m expecting some continued short term pressure. My model says medium term and long term strength, so instead of suggesting a ‘sell/short’ I’d wait for a pullback into 12000c-12300c for a fresh accumulation. This is another ‘breakdown and back-test’ chat play. Short term money flow is declining while RSI is rolling over.
Ninety One Plc
In the short term, the 4526c – 4582c range are key levels for the share. The chart structure has developed a rising wedge-like formation while the RSI has made lower highs, signaling bearish divergence. A break below the incline support trend line puts the share at risk of a break lower. The 4312c level is one to watch, followed by 4130c and 3952c. Should we see strong support here, then we may have another breakdown and back-test opportunity.
Virgin Galactic (SPCE)
I’m monitoring SPCE closely for the next potential explosive move. The last massive ramp up was preceded by very similar price action as we have at present i.e. a pop followed by lower highs and lower lows which was then followed by a massive reversal to give traders a nearly 6-fold move in 10 weeks (see circled areas). As soon as we breach the downward trend line, it may be our first indication that a change of trend is imminent.
Across My Screen: Charts and Data That Have Caught My Attention Since Friday’s Close.
Earnings Recovery (via: JPM)
USD Positioning (Via:Haver)
Short Interest: Sectors ETF (via: MS Quant Derivative Strategies Team)
Sharpe Kings and Paupers (via: GS)
Liquidity Alert (Via: GS)
Volatility is everywhere (via: WSJ)
What a volatile year: For perspective on how uniquely volatile this year has been – 54% of all trading days in the S&P 500 have been +/- 1%, One-third have been +/- 2%, Thursday was the 14th 3% or worse day in 2020 and the 5th time we have seen a decline of 5% or worse. In the previous 7 years prior to 2020 there were just eight down 3% days in total.
EU Bounce (Via: JPM)
The Week Ahead (via: TradingEconomics)
Investors will continue to monitor the spread and impact of the pandemic on the global economy amid growing concerns that a second wave of infections in the US could lead to additional lockdown measures. Elsewhere, US Fed Powell’s testimony to Congress and an European Council meeting will be keenly watched. Data to follow include US and China retail trade and industrial output; UK jobs report, retail sales and inflation data; Germany investor morale; Japan trade and inflation; and Australia employment figures. Monetary policy action will be taken by central banks in the UK, Japan, Brazil, Russia, Switzerland, Indonesia and Taiwan, while minutes from prior meetings will be published in Japan and Australia.
In the US, Federal Reserve Chairman Jerome Powell will testify on the semiannual monetary policy report to Congress, the first since the pandemic took hold. Meanwhile, retail sales and industrial production numbers for May should point to a recovery in trade and activity from the previous month’s record falls as the country gradually reopened its economy. Also, housing data is expected to point to a rebound in housing starts and building permits from April’s five-year lows. Other important publications are business inventories, NY Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index, NAHB Housing Market Index, first-quarter current account, overall capital flows, the government’s monthly budget statement and the weekly jobless report.
Elsewhere in America, central banks in Brazil and Chile will be deciding on monetary policy, with Brazilian policymakers seen cutting rates to fresh record lows aiming to support a weakening real amid the coronavirus crisis. Other key reports to follow include Canada retail trade, inflation data, manufacturing and wholesale sales, and new housing price index; Mexico first-quarter private spending; Brazil retail sales; and Peru monthly GDP.
Across the Atlantic, the Bank of England will be holding its monetary policy meeting on Thursday, with markets expecting no changes in borrowing costs and an increase of about £100 billion in its bond buying program. Traders will also await to see whether the central bank opens the door to negative interest rates. On the economic data front, the UK jobs report is expected to show the highest unemployment rate in three years and the weakest wage growth in nearly six years. Figures for retail trade, inflation data and public sector net borrowing will also be in the spotlight.
Elsewhere in Europe, all eyes will be on the European Council meeting on the 18th and 19th at which EU leaders are expected to discuss the €750 billion Recovery Fund Plan to support the countries and sectors hit hardest by the pandemic. On the economic data front, investors will turn their attention to the Eurozone foreign trade, construction output, wage growth and current account; Germany investor morale, producer and wholesale prices; Italy trade balance and factory orders; Switzerland foreign trade and producer and import prices. Also, policymakers in Switzerland, Norway, Poland will probably hold interest rates at current levels, while Russia’s central bank is seen cutting them by at least 50 bps.
China will be publishing industrial production, retail sales, fixed asset investment, unemployment rate and house price index. Output growth is set to accelerate in May, while both trade and investment are seen contracting at slower rates. The Bank of Japan will be deciding on monetary policy, but no changes are expected, while minutes from an unscheduled policy meeting in May will also be highly anticipated. The country will be publishing trade balance and consumer inflation rate.
The Reserve Bank of Australia will be also releasing the minutes of its last monetary policy meeting. On the economic data front, important releases include employment figures, Westpac leading index and house price index. Across the Tasman Sea, New Zealand first-quarter GDP figures will be in the spotlight, while investors in India will focus on trade balance and wholesale prices, with markets pointing to the first month of deflation since June 2016.
Other highlights for the Asia-Pacific region include: Singapore non-oil exports; Malaysia and Hong Kong unemployment rates; and Indonesia trade balance, retail sales and business confidence. Central banks in Taiwan and Indonesia will be deciding on monetary policy.
Sunday Trade: Middle Eastern Markets
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Thank you for taking the time to read this report.
My intention with this chart pack, which includes a mix of perspectives and ideas, is to provide traders and investors at all levels with the following:
- Information: To inform and alert you to high probability technical trading setups which could assist you in generating a profit in the financial markets.
- Identification: Identify Key Levels and Insights (for e.g. Relative Sector Analysis) for your existing universe.
- Spark Additional Ideas. For e.g. Sappi and Mondi may both be attractive however you may prefer one over the other or an international stock in the same sector.
- De-Risk: Our charts may include caution around selected stocks that present downside technical risk, helping you to identify an opportunity to exit a share and preserve capital in the process.
- Provide an alternative, non-traditional and process-driven view.