Perspectives 21 December 2015

Officially this is my last T40 blog post for the year as I'm finishing off on the trading front come 24 December and breaking till 04 January. I'll save the new year's messages for a post I'm planning towards the tail-end of next week but will say Merry Xmas to anyone who's still meandering around forums and blogs at this time of the year. I trust you will have a great Xmas and a relaxing time with family and friends.

Reflecting back on the past week, in last week's post I made the point that we would need to exercise caution with all the economic and political happenings playing out. And it was fairly choppy week all in all with some significant up and down moves. On balance, while the week officially ended in the green, looking at the weekly candle, we can see the choppiness reflected in a long wick and tail and with a forward looking view, the bears may still have it by virtue of that long wick. However the weekly stochastic is oversold (although not reversing yet) and the RSI has started to pip back upwards. Also as noted in last week's post, if the prior week low can hold, we could see some critical, much needed positive divergence being brought into play here.

So the weekly charts still remain mixed but if a solid positive candle can be formed in the week ahead, the bulls could just nose ahead on a  medium-term basis.

On the daily chart, we can see how the breakout target area was met and the market then rallied fairly strongly before taking a pounding on Friday to close the week. The stochastic remains pointing to further upside in the near-term but should there be a bearish start to the new week, we could see a failed stochastic reversal coming into play. Also looking at the chart patterns, a weak start could see the T40 conforming to the draft rising wedge pattern marked up on the chart with potential  downside towards the 43,000 level. Conversely a break above 45,000 would be needed to negate the wedge formation.

The daily closing support and resistance has not changed much since last week with range trades available between 45,300 and 42,400 or thereabouts. 

So overall, my view is that things remain in a  fine balance. With reduced liquidity in the market leading up to Xmas, caution should still be maintained with additional spreads being factored into risk and dynamic trade sizing. However, with us currently slap-bang in the trading range I'd feel comfortable letting positions run in either direction especially with the major volatility events out of the mix for the balance of the year (touch wood!) depending on whether the bulls or bears take an early lead, this bias may shift and I'll reflect that in the commentary section.

Perspectives 14 December 2015

In last week's Perspectives post, I painted a scenario of short-term consolidation followed by the potential for further weakness on the cards. The consolidation element of this viewpoint was fairly short-lived with the fallout of highly publicised political shenanigans providing the catalyst for the anticipated weakness to start playing out in rather dramatic fashion towards the tail-end of the week. The result is that triangle breakout identified last week has nearly played out and we are now fast approaching the breakout target area which was identified between the 42,500 and 43,000 levels. 

Looking at the current weekly chart, we now see that last week's entire candle body painted below the 89 week EMA. In last week's post we referenced the fact that this has only happened in 3 stages since the end of 2009 and this is relevant historical information to keep in mind as we move into the year-end. From the graph we can also see that the weekly stochastic is now oversold but still firmly pointed downwards. Interestingly if it can create a swing low here, we could see the potential for positive divergence being formed on a weekly basis - this is still to be confirmed though. At present both the slope of the stochastic as well as the positioning of the RSI still points to the potential for further weakness.

The daily chart shows the progression towards the breakout target area noted above and of interest will be whether the market can find support around these levels. With the future closeout pending for this week a move below 43,000 could see further sell-off at this significant options level. The stochastic looks to have found a base with the potential for some consolidation/ bounce playing out.

On the daily support & resistance graph we can see that there is clear room to fall towards the 42,500 level unless a support level can be established in the near-term.

Factoring in uncertain elements like the FOMC interest rate decision on Wednesday night and the futures closeout on Thursday, the continued currency and local market fallout in the wake of the cabinet changes taking place, combined with a local public holiday on Wednesday and the week ahead is going to be one of the most fascinating from an analysis perspective. For the last 2 years we saw continued weakness into the closeout followed by a rally into the year-end. But circumstances are undoubtedly fundamentally different this time around. 

My view on this would be that we would need strong consolidation out of the blocks to prevent further weakness over the course of the week or there is a high probability that we will see the T40 fall further into the target zone highlighted above and then towards the 42,500 support level. If that scenario plays out it may well negate the potential for positive divergence on a  weekly basis and the rather bearish proposition set out in the weekly 3LB chart here could be on the cards. Alternatively, if the market could find some form of support here - especially a consolidation above 43,500 we may see this start to base out for a short rally or sideways chop into the year-end.

Either way trading the next few days on the T40 demands extreme caution.  On balance my view remains bearish and I will look to trade intraday moves quickly on both the long and short side with compressed targets to take quicker profits. Another risk management measure I will look to implement with a bearish bias in mind is to half risk size on the long side leading up the futures closeout. 

Sappi long and Clicks short

With the shenanigans of the past 24 hours creating a lot of volatility across the board I was initially reluctant to post these trades as the outcomes appear quite remote at face value. However, as the system has been stress tested across a range of market conditions, far be it for me to start second guessing at this point and to allow market volatility fear to prevent the pulling of the figurative trigger should potential trades be triggered tomorrow. Having said that, overall open risk should and will also be evaluated and that would be a factor for consideration pre- entering either of these positions.

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SAP: Long entry zone between R63.23 and R60.24 with a stop as a close below R57.24 and upside targets at R69.22/R75.21 and R78.21

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CLS short entry zone between R83.45 and R87.68 with a stop as a close above R91.91 and downside targets at R74.99/R66.53 and R62.30

Pick n' Pay long and Telkom short setups

With the 21 week EMA well above the 89 week EMA, despite the bearish candle painted last week, the longer-term trend on PIK still looks fairly stable setting a series of higher lows over the past 6 months . The stochastic does have a slightly bearish bias but its in a fairly neutral zone at the moment. 

Drilling down into the daily chart, we see that price has retraced  from the last localised high achieved in the last week of November and then found support at the 100% retracement level resulting in a hint of positive divergence as price made a lower low while the stochastic made a slightly higher low.  The stochastic is also oversold and looks to be reversing upwards towards its signal line.

On the support and resistance daily graph we see that price appears to be finding support at an upward sloping trend-line going back to June 2015 

As indicated in the graph above, I'm going to trade this by looking to buy into further strength at an entry around R64.20 (above today's high) looking for a move back to overhead resistance at R68.50 with a stop set as a close below R62.70 (previous swing low) yielding a target reward-risk of 2.9-1. In the context of overall market weakness and the slightly bearish bias developing on the weekly chart I'd grade this trade at 75% of maximum risk. 

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TKG is a standard 3LB short setup with the 3LB breaking down below its previous swing low creating a sell zone between R57.90 and R59.70 with a stop as a close above R61.50 and downside targets at R54.30/R50.70 and R48.90

PPC Short setup

I missed an entry on PPC the last time it gave a short setup on this basis but a fresh signal came through with the 3LB breaking its previous low on Friday. The entry zone is between R15.02 and R15.36 with a stop as a close above R15.69 and downside targets at R14.35/R13.68 and R13.35.

Perspectives - 06 December 2015

Following last weekend's analysis, it was the bears who took the center stage over the course of the week as we saw the breakdown out of the triangle pattern which was highlighted increase in downward momentum as the week moved to a close with the envisaged support zone between the 45,300 to 45,500 level not even slowing the descent down.

Looking at where we stand at the moment, the weekly chart shows the close below the 89 week EMA which has happened at only 3 stages since October 2009 (when the 21 week EMA crossed above the 89 week EMA). The weekly stochastic remains bearish pointing firmly downwards and has room to fall before being regarded as oversold.

On the daily chart we can see the triangle breakout projected down to the 42,500 - 43,000 zone. However, the stochastic has flattened and may be reversing which could be indicative of short-term consolidation in the week ahead.

The daily support and resistance shows the previous support level around 45,3000 now shown as overhead resistance as we closed at minor 44,400 support. This minor support could potentially be the catalyst for short-term consolidation as noted above.  However, we also need to look at the next major support as reflected by the slowly rising blue line in the chart. Again, this points to potential support only coming in around the 42,500 level.

Putting this all together, it appears as if there is a potential for near-term consolidation in the making but unless the T40 manages to regain major support above 45,300 we would look down towards 42,500 - 43,000 as a probable target area. For intraday trading we will therefore allow the shorts to run while taking quick profits on any long positions. I may also look for a potential short entry on a longer-term basis on a consolidation pullback within the next week or so if an acceptable reward-risk can be established.

Short setup on Nedbank

This is the second setup on the short side for Nedbank in less than a month. I missed entry on the previous occasion as it moved out of the blocks too quickly and in the context of the overall market weakness there may well be another downward surge away from our entry point tomorrrow however, the setup details are as follows as a result of the 3LB breaking its previous swing low: Entry zone between R201.53 and R203.99 with a stop in as a close above R206.44 and downside targets at R196.62/R191.71 and R189.26

Some more short setups - KIO and GRT

The resource sector doesn't need any further downside but there's  technical 3LB breakdown coming through on KIO as per the chart below yielding an entry zone on the short side between R40.11 and R42.51 with a stop as a close above R44.90 and downside targets at R35.32/R30.53 and R28.14. Calling a bottom in these things does appear to be an exercise in futility....

Another sector which has been taking strain of late as we lead into the rising interest rate cycle is the property sector and with us already trading breakouts on Refine as well as Attacq,  I'm actually getting a bit concerned about overconcentration in this space. But for completeness, this is the setup on GRT which has now materialised as well. Details as follows: Entry zone on the short side between R23.80 and R24.13 with a stop as a close above R24.45 and downside targets at R23.15/R22.50 and R22.18.

Attacq short setup

Interesting how the property stocks seem to be popping up on a breakout basis at the moment. Here we have the 3LB on ATT breaking its previous swing low setting up a short entry zone between R20.14 and R20.47 with a stop in as a close above R20.80 and downside targets at R19.48/R18.82 and R18.49