The T40 spent most of last week bumping up against but failing to comprehensively break the 47,000 level we've been eyeballing as a key resistance level to crack for the further upward move.
Looking at the weekly chart we see that the stochastic has worked off its overbought condition but is still pointing firmly downwards. The weekly candles really only reflect the sideways chop consolidation the market has been experiencing over the past few weeks making it difficult to see a clear direction materialising.
Countering this outlook is the potential recurring seasonal impact of the "santa clause rally". Looking back at the past 2 years, its worth noting that this has kicked in later and later with the market pivoting off a low in the week of 13 December and 17 December in 2013 and 2014 respectively. From that perspective, we still have a couple of weeks of further potential weakness in the making at least assuming we have a breakdown playing out here.
Worth noting at this point is also a post I did on twitter a few weeks back
What this shows is the % drop from high to low that the market took following a break of the swing low on a 3LB weekly chart. Interestingly, in the last 10 years, the weekly 3LB has only broken down 4 times (July 07, July 08, March 11 and then most recently in August 2015). Of all of these, the high to low originating in August 2015 has to date been the the most moderate with the market reversing but only 12%. Again nothing conclusive can be drawn form this observation but it adds another notch to the bearish outlook that further downside could be on the cards.
Drilling into the daily chart, we can see the T40 in a consolidation holding pattern at the moment with the stochastic meandering a bit aimlessly in neutral territory. There's also a slightly disturbing potential triangle formation in the making which if breaking down, could see a significant downside move in the making.
The daily closing support and resistance view shows how the 47,000 level has resisted the upwards break as the T40 remains range-bound within the major channel as highlighted.
Overall its not a clear picture at the moment. The potential for downside over the next couple of weeks appears real unless the market can find support around the 46,000 level again. If that support level fails the 45,300 area will be critical or we may see the triangle break highlighted above playing out and could well see the prior lows being revisited int he medium-term. On the flip-side, if the T40 could break and hold the 47,000 level, the bulls could force the year-end rally to play out with potential for further upside back towards historical highs. In the short-term we'll trade this analysis by keeping targets tight and fixed while we're in the 45,500 to 47,000 range for both longs and shorts. If we breakout of that range we'll be more inclined to let trades run.
A 3LB breakdown on the daily charts setup took place today with short parameters as follows: Entry zone between R36.68 and R37.18 with a stop as a close above R37.68 and downside targets at R35.68/R34.68 and R34.18
Its been less than a month since the last (unsuccessful it must be said) trade attempt on RDF. Interestingly enough we now have a short setup in play as the 3LB breaks below its previous swing low. Entry zone is between R10.49 and R10.65 with a stop as a close above R10.80 and downside targets at R10.18/R9.87 and R9.72
The market didn't play out as originally anticipated during last week's analysis with the T40 starting to work off the identified oversold conditions on a daily basis. The consideration at this point is whether there will be any bullish follow through as we head towards the end of the month.
Starting off with the weekly chart, we can see how price rebounded off the upper bollinger band but has now retraced to the 20 period moving average forming the center bollinger band where this line has created a confluence of support together with the 38.2% Fibonacci retracement level. The stochastic is not quite confirming a possible support bounce as yet although it has started working off its overbought condition.
On the daily view, the bounce out of oversold conditions is clearly shown as well as a bullish stochastic reversal playing out. We can also see a potential positive reverse divergence (as indicated by the blue lines) playing out.
The support and resistance on an end of day basis is seeing us approaching the 47,000 overhead resistance level and the first order of the week will be to see whether the Top 40 can break through this level with a positive daily close. Interesting to note that the recent reversal off the 46,000 level on an end of day basis coincided with the 61.8% retracement level. A solid break north here could see coinciding with the potential for a santa clause rally could see a move back to previous highs near the 49,000 level by the year-end on a more medium-term basis.
Putting all of this together, on balance the picture has shifted to a more bullish outlook with the key being the regaining of the 47,000 level as support early in the new week.
3LB breakouts played out on TBS and INL yesterday. Will be looking for some intraday price pullbacks to enter.
TBS: Entry between R336.82 and R330.91 with a stop in as a close below R325.00 and upside targets at R348.64/R360.46 and R366.37
INL: Entry between R117.99 and R113.93 with a stop in as a close below R109.86 and upside targets at R126.12/R134.25 and R138.32
As set out in the perspectives note for this week, the overall market has experienced a substantial sell-off over the past week. While this has generally been felt across all sectors, what was notable was that resources were particularly heavily hit during this period while industrials, despite also experiencing a sell-off, not being impacted with the same level of severity. Consequently, looking at the pricing of industrials relative to resources (in this case dividing the Satrix Indi ETF price by the Satrix RESI ETF price), an interesting graph can be seen.
The graph above shows how the pricing of industrials relative to resources has pushed the relative ratio to a high of 2.54 during the course of last week. While this outperformance is really not unique, what is of interest is the huge surge over the past 2 weeks pushing the ratio outside of the upper bollinger band as well as the fact that following Friday's trading there seems to be a potential for a reversal in the making.
I also looked at graphs of the STXRESI and STXINDI individually. The STX RESI shows that the stochastic is oversold and has just crossed back over its signal line. This is accompanied by a long-tailed candle painting on Friday and we also see that volume has been declining during the tail-end of this sell-off - potentially indicative of seller exhaustion.
This seems to support a case for a reversal or at least a relative reversal being on the cards.
For the STX INDI while the stochastic is also oversold, it still remains pointed firmly downwards following a thick bearish candle being painted on Friday and conversely to the RESI graph, volume has also increased during the tail-end of this sell-off.
Trade setup as follows: Sell STXINDI at R71.23 and Buy STXRESI at R28.20 (Friday's closing prices) yielding a 2.53 entry ratio. The stop is a close above 2.6 (above the previous relative swing high) and the target is at 2.30 (close to the middle line of the bollinger bands). This yields a target reward-risk of 3-1
With the increasing probability of a US interest rate hike on the cards for later this year, locally listed property stocks have experienced a substantial pullback over the past 3 weeks. I tried an unsuccessful 3LB long trade on Redefine (RDF) around the start of that pullback but now the stock that has caught my eye is Hyprop (HYP) which has also retraced along with the rest of the sector.
Starting with the longer-term weekly chart of HYP, we can see the 21 EMA well above the 89 EMA highlighting the major uptrend this stock remains in. The weekly stochastic has crossed below its signal line and is pointing downwards to be sure so the potential for further downside remains - however the stochastic itself is positioned in a fairly neutral zone.
The daily chart makes for more interesting viewing as here we can see the stochastic reflecting the reversal noted above but now starting to move back up from oversold conditions, crossing its signal line upwards on Friday. The daily candle also looks relatively bullish painting a semi-long tail and ending well off its lows for the day.
Finally the daily support and resistance view shows the stock hitting a relatively strong support level going back to the start of the year.
Some mixed signals particularly on the longer-term time frame so we'll look to trade this stock using 75% of normal risk size. Our setup will be to enter below R121.00 or better (around the current price)with a stop as a close below R118.00 (under the support level) and we'll look for a move back to around the R127.50 zone. This conservatively yields a reward-risk of 2.2-1 which could be improved by getting in at a better level and perhaps looking to exit closer to the R130.00 level. That latter element will be evaluated once the trade is entered but in the context of the overall market and taking quicker profits on the long side, its not an essential element of the setup.
Last weekend's perspectives note played out during the course of the week as the T40 broke major support breaking to the downside. The weekly graph reflects how price reversed off the higher bollinger band as the stochastic crossed bearishly over its signal line. What now needs to be considered is the extent of the downward move. The stochastic still looks highly bearish and in this longer time-frame basis further downside appears to be on the cards.
The daily chart shows - via the stochastic - how oversold the T40 is following the last week's sell-off. However, at this stage there is really no sign of a reversal on the cards either in the slope of the stochastic, which is pointed firmly downwards, or in the daily candle formations which are very bearish.
On the support and resistance front, with the break of the support around the 47,000 level (now flagged as a red resistance line) we are now eye-balling the next support level at around the 45,300 - 45,500 level.
Putting all of this together to plan for the week ahead. At the outset we'd be looking to continue letting our shorts run as far and as hard as possible, treating any long trades as counter-trend and therefore taking quick profits if these setups do materialise. However if the market does start approaching the 45,300 level we need to be a bit more wary even on the short side as the sell-off has been fairly substantial so some consolidation could be on the cards around major support levels leading to choppiness. In that case, we'd look to take profits on short setups as well unless there's a decisive break of support .
3LB breakdown setup on end of day basis. Entry zone between R63.11 and R65.36 with a stop in as a close above R67.60 and downside targets at R58.62/R54.13 and R51.89
The market has taken a bit of beating over the past few days and technical 3LB short signals are popping out the woodwork at the moment. Here are the graphs of 3 signals currently in play (The 4th one was Lonmin but its in such a slump that the projected take profit point was negative - indicating that this one could well go bust pretty soon!)
Setup details:
ARI: Entry zone between R50.75 and R52.66 with a stop as a close above R54.57 and downside targets at R46.93/R43.11 and R41.20
: Entry zone between R199.35 and R204.08 with a stop as a close above R208.80 and downside targets at R189.90/R180.45 and R175,73
NED: Entry zone between R213.12 and R217.82 with a stop as a close above R222.51 and downside targets at R203.73/R194.34 and R189.65
A bit of caution in that there is a risk of overtrading and creating an over-concentration of risk - especially in the resource space if there are existing short positions, so a better tactic might be to choose between one of ARI or BIL to short here rather than both.
NHM 3LB looks to be be breaking down again. Entry zone comes in between R29.17 and R30.14 with a stop as a close above R31.11 and downside targets at R27.23/R25.29 and R24.32
Last week we noted the following as our game plan : "On balance this leaves us with a short-term bullish bullish outlook out of the blocks but we will start exercising caution given the longer time-frame perspective if price starts approaching the 49,000 level again. So quick profits will be taken on positions to the upside and if/when we start commencing the downside move, we will let our short trades run as far as possible especially if we breakdown below the 48,000 level"
This played out almost exactly in line with expectation as the market first moved sharply higher breaking through the 49,000 level with this proving a false break as it then with a similar level of alacrity moved downwards ending the week in the red. Looking at the weekly candle, we see that reversal candle coming off the upper bollinger bad with the weekly stochastic now looking decidedly bearish as it looks to reverse form overbought levels.
On the daily chart, the week-end reversal is clear in Friday's bearish candle. The stochastic also looks like it has some room to fall as it moves downward.
The daily support and resistance doesn't add much to the analysis at the moment other than to highlight the fast-approaching major support level between 47,000 and 47,500 or thereabouts. Its going to be important for this to hold in the days ahead.
Our plan at the start for the week is then to again revert to quick profit taking on any long positions taken on the T40 with an eye on a break of major support which could see the flood-gates opening to the downside on the short-side.
TBS looks to be breaking out on the 3LB end of day basis again and with its annual trading statement likely to materialise in the near future, this could be a catalyst for the next move upwards. Entry zone is between R336.47 and R332.21 with a stop in as a close below R327.94 and upside targets at R345.00/R353.53 and R357.80
With the 21 period EMA below the 89 period EMA on the weekly chart price is clearly in a longer-term downtrend at the moment. This is further supported by a bearish stochastic crossover which took place at the end of last week.
On the daily chart we can see evidence of an overbought stochastic starting to lose steam and moving downwards. Price has also retraced 100% from its previous major low. The daily candles are not fully convincing either way with the long tail and wick on today's candle reflecting a fair bit of uncertainty.
On the support and resistance chart we can see a relatively lateral resistance level in play and off which price appears to be reversing from around the R85.00 level.
BAW released a trading statement this morning and following an initial surge the market gave back its gains eventually closing in the red in line with the overall market.
Some mixed signals in this setup so we are going to grade the trade at 60% of risk value and will look for a quick bounce off resistance with an entry at around the current R84.00 level with a stop as a close above R85.00 and a target at R81.00 for a 3-1 target reward-risk
On the long-side we have WHL looks to be breaking out on an end of day basis with the 3LB breaking the previous swing high. We have an entry zone between R104.00 and R103.23 and a stop in at R102.46. Upside targets are at R105.54/R107.08 and R107.85
On the short-side AEG looks to be breaking out on an end of day basis with the 3LB breaking the previous swing low. We have an entry zone between R3.34 and R3.42 and a stop in at R3.50. Downside targets are at R3.18/R3.02 and R2.94
Last week saw the Top 40 come within a hairsbreadth of its all time high before reversing down fairly sharply and then catching a bounce leading into the weekend. On balance it was a week which saw quite a bit of breakout trading frustration as the market was fairly choppy.
The weekly chart of the Top 40 shows a bit of potential topping coming into play as the stochastic is overbought and reversing. Also note that we're touching the top of the upper bollinger band and as highlighted by the red arrows in the graph, the last 2 instances that we saw the stochastic start reversing from overbought conditions having touched the upper band, this was followed by a pullback in the overall market.
On the daily charts we see little to give short-term guidance with the stochastic pretty much hovering in neutral territory. Friday's daily candle looked fairly bullish with a bounce off the previous flag pattern ceiling towards which price pulled back to over the course of the week. This would suggest a bullish start to the week is on the cards - especially when one also notes a potential bullish divergence with price painting a higher low and the stochastic putting in the lower low.
The daily support and resistance view of this graph also appears to support a case for an initial bullish move with a bounce off the 48,000 support level.
On balance this leaves us with a short-term bullish bullish outlook out of the blocks but we will start exercising caution given the longer time-frame perspective if price starts approaching the 49,000 level again. So quick profits will be taken on positions to the upside and if/when we start commencing the downside move, we will let our short trades run as far as possible especially if we breakdown below the 48,000 level
The 3LB on a daily basis appears to be breaking down. Entry zone between R22.72 and R22.20 with a stop in as a close above R23.23 and downside targets at R21.17/R20.14 and R19.63
