Underdog Perspectives - 01- 04 March 2016

04 March 2016

Another advance painted the 3rd consecutive strong bullish daily candle. We are now well above the 89 day EMA and the probability of a bullish crossover of the 21 day EMA above the 89 day EMA is increasing. The stochastic is well overbought but is still maintaining its positive shape. With the close above the channel ceiling and lateral resistance (now support) we could be seeing some new structural development (assuming the bulls can hold this level). 

We would now expect some consolidation above the 45,350 level as we head into the weekend allowing the bulls to refresh for an assault on the 46,500 level. Failing that a break back below 45,350 and 45,000 could be indicative of this being a failed breakout. In a nutshell, the hard work has been done by buyers - they just need to maintain these levels for now.

***

Some whiplash in the afternoon session mainly off the 3LB intraday session saw us drop 3xR for the day. It was unfortunate that our early morning setups didn't trigger on cue to take advantage of the bulk of the daily move. Still results aside, we executed well on our system setups for the most part and that's the critical focus area.

***

On the portfolio front we go the short entry in GND at our target entry level. It didn't have the greatest run during the day closing well up on the back of broader market strength but we are comfortable that the setup criteria remain intact. Similarly, our T40 short setup we entered yesterday remains intact albeit quite a bit above entry for now. Based on yesterday's high watermark (which may be surpassed today), our provisional target based on a 61.8% retracement is 43,100. 

Overall with these additions and some stop changes on existing positions, our overall downside risk has increased to 1.6xR (1.0xR) at a target reward-risk of 4.81 (4.96)and the RaR has put in a big advance to advanced to 3.55 (1.55). Now this may seem slightly anomalous in that our RaR is well above the desired benchmark and yest the downside risk exposure is so low and in a sense it is. With new positions like GND and the T40 in the red from early on , this reduces our open downside risk while enhancing the potential return on these trades. This is acceptable to us because (a) the trade setup criteria remain intact and (b) we need to give our positions the opportunity to work within the predefined risk parameter framework. While its naturally desired that trades work off the bat, one should not panic and start changing setup criteria simply because this has not been the case. Should stops be breached or setup conditions change, then these things can be revisited but not before.

On a new setup basis, there were a few breakout of options with SOL being in the mix following yesterday's move but the one which came out as the highest probability from our analysis was the breakout on IMP (Note that given our commentary on caution around chasing breakouts in the current market, we'll be trading this at 50% of our normal size)

In essence, its a standard 3LB breakout of its previous swing high and with the trend shifting positive (21>89 EMA) we'll look to enter on a pullback to the previous swing high at 41.60 with a stop as a close below the candle low at 37.50 and upside targets as indicated 49.75/53.85 and 55.90

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03 March 2016

And the rather relentless surge continues with another solid bullish candle. However we now find ourselves in and interesting space. The stochastic is overbought (although it can remain so for an extended period). Price has rolled above the 89 day EMA which last happened at the end of December last year. When in this space, it's generally a case of the market starting to roll over to the upside or a break back down again (as we saw towards the tail-end of December and into January). And perhaps most importantly, we are now near or at the top of the channel and the lateral resistance level at around 45,350- which we've been noting over the past few days.

The bulls now need to comprehensively break and close above this level in order to start eyeballing the 46,500 level which represents the right shoulder of a massive head and shoulders formation going back to around September last year. Breaching that level could seriously impact on the longer-term trend evaluation. Alternatively, the channel ceiling and lateral resistance will prove too much in these overbought conditions and we could see the market now starting to fall away again.

***

A mixed T40 intraday session yesterday saw us net 0.5xR of profit - mainly off the back of a solid overnight long session but then we made some judgmental errors so didn't capitalise fully on the day's trading action. Lesson: Chasing the last few cents and as a result losing all the rands - horrible strategy!

***

The portfolio exposure continues to dwindle and yesterday saw a stop out on the RMH short for a 0.9xR loss on a trailing stop trigger - 14 days/ R57.91->R59.86. The resultant portfolio now only has 1.0% downside risk and the RaR continues to decline - now at 1.55 (2.79). So there's definitely scope for some new trades and we've identified 2 such setups.

Firstly we have a structural pattern short on the T40 which we've been eyeballing for a while and which triggered in overnight trade. To refresh, we had identified a potential Gartley pattern setup based on the trading action over the past couple of months and what we were waiting for was a move back into the "shorting area" at point D which coincided with a 78.2% retracement of the major impulse move down from end December 2015. What added to our case for this short was the channel and lateral resistance levels noted in the T40 analysis above and so we had a standing order to sell at a level of 45,450 (which triggered overnight). Our stop is set above the 'X' level at 46,700 and we are looking for a move back to around the 43,000 level for close to a 2-1 reward - risk (the final target levels will be refined based on today's trading)

The second trade we'll be looking to enter is also a short - and again its on GND which we traded successfully earlier in the year. What we can see here is that the stock remains in a  strong downtrend trend but the stochastic has now moved into overbought territory. At the same time price has moved into the "sell zone" between the 21 and 89 EMA and yesterday saw the formation of a long-wicked potential bearish reversal candle. Combining this with the fact that we have the price reversing off some overhead structural resistance, we would look to enter our short at current levels looking for a move back down to the swing low at R8.50 and then R8.00 as a secondary target. The stop would be a close above resistance at R10.30. This yields a 2.63-1 target reward-risk.

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02 March 2016

The anticipated short-term positivity played out strongly yesterday with a very strong 800 point bullish candle being painted and the market managing to break and close the 44,500 level. With such strong momentum and the stochastic still not in overbought territory, it now looks set to challenge the strong overhead resistance and channel ceiling form around the 45,350 level.

In order for the bears to come back into the equation it looks like we'd have to see a reversal off around the 45,350 - 45,500 level and using the context of the potential Gartley pattern formation, that's where we'd be looking to put a potential swing trade in place. We already have the order in place with a short entry at 45,450 and a stop in as a close above the X high at 46,700 (reference yesterday's post for the actual chart) and a target in at 43,050 (about a 1.9-1 reward-risk)

But that's on a longer-term time-frame. In the short-term its the bulls that have the bit in their teeth and so we'll continue to respect that.

***

Intraday trading was solid yesterday as we managed to nett profits of 3.9xR while leaving one position long overnight. A decent way to start any new month and we're happy to found a step into the bullish momentum.

***

The portfolio remained and remains unchanged with open downside risk now down to 1.6xR (2.2xR) at a 5.3-1 potential reward-risk level. The RaR has however improved to 2.79 (1.79). All in all we need to get some more balance into the equation but there's very little appealing to us at the moment so we're not going to rush into any new positions until we see some attractive setups on offer.

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01 March 2016

And as the new week and the new month (and for the tax-year inclined folk the new year) kicks off it would be appropriate to reflect back on the trading experiences of the past week/month/year but in a sense these are artificial beginnings and ends we impose on ourselves to provide a frame of reference to operate in. The reality is that the flow of the markets don't really cease. So while we'll definitely be doing some reflection on our trading journey in time, for now we'll continue on our journey of analysis and execution as we move forward using some reflections on the overall market as s starting point.

We've been keen advocates of the value of using 3LB charts in our analyses and so thought it apt to kick-off with a monthly 3LB chart of the T40 going back just over 20 years. Looking at those instances where the 3LB shifted into negative territory, we can easily attribute this to very specific global events or at least events with a global impact. What is of interest is the speed with which the market recovered in isolated 3LB breakdown instances. However, it's also worth noting that sustained negativity has been self-enhancing leading to longer and deeper retracements (for want of a better term). This is relevant as we have now just painted the 2nd consecutive negative monthly 3LB candle in February - something which has only happened during the Asian crisis, the sustained stock market fall which saw the collapse of Enron and co (among others), and most recently the global financial crisis. In all these instances the fallout has continued for at least 4 months with varying depths of market retracement. 

Having noted this we can now also look to a monthly price chart we highlighted last month noting that once again the T40 has managed to paint a very long wick with a rally into the month-end. This appears to be a recurring trend popping up over the past year and again it provides us with a notion that we should look to perhaps lightening our short positions leading into month-ends. Once again its something we'll bear in mind during the month ahead.

Drilling down to the weekly level, we can see how the bearish divergence noted at the beginning of last week played out but then the market put in the reversal to push off its lows into the month-end. The weekly stochastic remains relatively bearish and the 21 week EMA continues to just hold off on a  cross below the 89 week EMA. On balance, the weekly charts are exhibiting dangerously mixed signals. 

And finally we look out our daily charts. Here we can see how the T40 continues to respect the upward sloping channel as the stochastic crossed back up over its signal line. With the 21 day EMA still below the 89 day EMA, we would still be looking of a reversal in the direction of the major trend but for now the short-term bulls appear to have the lead as we continue to eyeball the 44,500 and then the 45,350 level near the channel ceiling. 

And lastly, we'll post and reference the chart highlighted yesterday with respect to a potential Gartley pattern in the making providing further support to a the case for short-term bullishness towards the 45,350 level.

In summary, the month ahead still looks to offer plenty of challenges with mixed signals and volatility being the order of the day. In the immediate future upside appears to be on the cards so we would need to factor that into our intraday approach. We also need to potentially cutting back on end of day breakout positioning as there is a definite lack of follow through in the making on that front. Balanced non-correlated portfolio performance is also going to be key in negotiating the choppiness ahead.

Portfolio:
We had quite a bit of turnover with the SUI short triggering a trailing stop and closing out its balance  for a 2.6xR average profit. HAR also moved up strongly and we managed to take 50% profit at the T1 level while de-risking the balance by moving the stop to open. Lastly a switch stop was triggered intraday on the RES long which was underpinned by a dividend payout so we ultimately only lost about 0.5XR. A number of stops were also tightened. We also managed to enter a short on DTC as noted in yesterday's setup.

Consequently we  move into March with a rather modest 2.2% open downside risk and a target reward-risk level of 3.7-1. The RaR has also dropped off to 1.79 (3.22). However, for now with no new setup signals we will continue to simply manage our open positions as the new month commences.

Underdog Perspectives 22 - 29 February 2016

February 29th

Given the extra day this year, we've extended last week's blog post by one day so that we can kick-off with the new month and week on Tuesday. That said, there are some interesting angles to the T40 we'll be exploring in this post. Firstly, looking at the daily charts, we can see that the bulls managed to punch emphatically through the 43,000 and 43,400 levels with a strong bullish candle forcing the stochastic to cross back up over its signal line without having reached the oversold level. We are still at the 61.8% retracement level of the most recent down move but the T40 continues to move smoothly within its channel and one could now start looking towards the 44,500 resistance level and then a major resistance level around the 45,350 - 45,500 levels which would coincide with the ceiling of the rising channel. Despite the 21 day EMA still remaining below the 89 day EMA, the short-term impetus therefore does lie with the bulls.

The point of interest we'd like to analyse a bit more is around some advanced pattern analysis we've started exploring.  We appear to have the makings of a potential Gartley Pattern on the daily T40. Without going into the pure mechanics of it (a useful reference for that can be found here), we are currently in the process of completing the final leg of the pattern which would see a move back to the 78.2% retracement of the initial X-A leg. This would present a shorting opportunity on a fairly high probability completed formation. 

What's interesting is to see the confluence between this pattern and the major resistance we noted above. This adds to the case in favour of the bulls pushing this market towards the 45,500 level before the next major down move and in the short-term allows us to favour long-side positioning on an intraday basis. 

***

Not much to report on the intraday trading - A grinding 0.8xR  profit on the T40 played out on Friday with us leaving 1 long position open for the weekend. 

***

On the portfolio side we closed out our T40 short position on a  close above the trailing stop level netting 0.2xR profit on that trade. We also entered the HAR position highlighted late on Friday at the anticipated target entry level. On balance we now have 4.5% (4.6%) open downside risk exposure at a target reward-risk of 3.42-1 (3.31-1) and a RaR which has advanced to 3.22 (3.15). All-in-all a very solid position to be in and while its difficult at these levels to identify complementary positions, one which does add to the whole is a setup on DTC which actually triggered a few days back but remains valid.

Now we did trade DTC a few weeks back on breakout basis to the short side and stopped out on our position as it reversed upwards. We can however see that the reversal has moved price into an overbought position from where it's starting to now reverse downwards. The last week of trading has also seen a number of bearish candles being formed - although these are yet to see a follow through to the downside.

Setups details are as follows: Entry at R46.91 with an initial stop set as a close above R52.58 and downside targets at R38.30 and R34.40. 

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February 26th

One for the bulls is that they managed to keep the market within the rising channel boundaries as the stochastic continues to worm its way down towards the oversold territory. However, at the moment its a bit of a holding action as the attempt to push the market above the 43,000 level was met with some strong resistance forcing the daily candle to close well of its intraday high. So on balance, very little changes from yesterday with the buyers still needing to move beyond 43,000 and then 43,400 and the sellers needing to break the channel floor and then the 42,000 level. 

***

Nothing much to report on intraday with a net 0.6xR loss.  A bit disappointing after plugging away fairly well for most of the day we faltered with a few errors into the close. 

***

We're pretty comfortable with the portfolio composition and balance at the moment. We took the long setup into SAP as per yesterday's setup and this has helped in moderating short-side exposure. With 4.6% (4.6%) downside exposure at a potential 3.3-1 reward-risk and an RaR improvement to 3.15 (0.89) we'll be standing pat for today.

***LATE AMENDMENT***
So much for standing pat..A setup which did come across the table and we were a bit late in analysing but feel it would supplement the portfolio quite well is a long in HAR:

Setup is a 3LB breaking previous structure high with an entry at R49.10 and targets at R53.20 and R57.80. Stop is a close below R46.30.

And NOW we'll stand pat

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February 25th

Another bearish candle saw the T40 breach the channel floor intraday but the bulls managed to rally the market off the 42,000 support level and the index closed well off its lows back inside the channel. The daily stochastic remains pointing firmly downwards though and buyers will need to force the follow through on this bounce firstly through the 43,000 and then the 43,400 levels. Its critical that the bulls not falter here for the channel to hold its shape.

Alternatively, a move back down to breach the channel floor and the 42,000 support level could open the door for further downside.

For now we will respect the 42,000 support and any short setups will need to be capped at that level. Conversely any longs will be capped at 43,000 unless this level is breached.

***

Not the best intraday performance yesterday with a 3xR nett loss. The main issue this week has been our overnight positioning where we've missed some profitable opportunities. We need to develop some better consistency in setting up these positions and then executing on them. The point has been made in this blog that very often profits foregone tend to be more frustrating than losses incurred and that has certainly proven to be the case this week.

***

An unfortunate missed entry on BIL after the stock gapped down was another example of profits foregone and following some strongly positive moves on the balance of the portfolio, we now find ourselves with open downside risk of some 4.6% (4.3%) which is perfectly fine. However, our RaR - which were looking to supplement with the BIL entry has now dropped off to 0.89 (1.77) which is below our threshold. What this essentially means is that we are too heavily exposed to risk relative to the potential return we can generate and at the same time our short-side exposure remains too high. To remedy this we've identified a long-side setup on SAP for potential entry today:

It's not been long ago since we attempted a similar setup on SAP which we stopped out on when it failed to follow through. But with the setup conditioning again aligning, this remains one of the more resilient stocks on the market and so provides fairly rare long-side exposure against the backdrop of a falling market.

With the 21 day EMA still above the 89 day EMA on a daily and weekly basis, we regard the longer-term trend as being bullish. Price had flushed below the 89 day EMA but with the painting of yesterday's bullish candle, it managed to close back inside the 'buy zone' between these moving averages. The stochastic remains oversold but has now crossed up above its signal line.

We'd look to enter on a break of yesterday's high at R63.07 with a stop in as a close below R59.18 and upside targets at R79.40 and R84.70 as indicated yielding a 4.9-1 target reward-risk outcome.

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February 24th

And an early break of 43,400 put us solidly into the bear zone yesterday as a solid downward candle painted on the day. On an intraday basis, the 43,000 level offered some support but that level eventually capitulated as well and we now look set for a move towards the bottom of the channel floor and with the stochastic still having plenty of falling room, we could also start eyeballing further downside towards the major 41,500-42,000 zone. 

The bulls need to pull a rabbit out of the hat to catch this market at the moment and this would need to start with some form of consolidation action above 43,000 and then 43,400. Failing this we could see a bounce off the channel floor.

On an intraday basis we maintain our short bias as we look to a potential channel break being on the cards. 

***

On a nett basis yesterday's intraday trading saw an accumulation of 1.6xR profits. A bit disappointing not to have followed through on some positioning that was in place but still comfortable with the momentum coming through in this space as we move towards the month-end.

***

From a  portfolio perspective, we' managed a long entry at R128.67 into RES as planned yesterday and we also scaled back on our SUI position taking 50% of the profits off the table. The rationale was around the fact that with all the bad results now out in public, the further catalysts to downside in SUI were reduced - although we are comfortable holding the balance of the position with a profit-locking stop in place - and that we needed to open up some capacity for fresh positions.

Overall, our downside risk exposure has now increased to 4.3% (still well within our threshold) at a potential reward-risk of 2.8-1 (previously 4.8-1) and our RaR has dropped to 1.77 (2.63). To bolster these a setup which came across the table is a short on BIL:

While this stock, along with resources generally have been starting to move off their lows lately, the overall trend on BIL remains down. We can also see how the stochastic has moved into overbought territory and has now started to reverse with a cross below its signal line. Yesterday, post-results, a thick bearish engulfing reversal candle was painted in the sell zone between the 21EMA and 89EMA. All of this is a recipe for a short setup with an entry on a move under R161.31 with a stop in as a close above R173.71 and downside targets of R136.50 and R126.50 yielding a 2.4-1 target reward-risk level.

From an overall portfolio perspective, entry here may necessitate some more balancing during the course of the day as our downside bias is still marginally overweight and while this isn't a critical concern as the market continues to fall, we'd not want to be as heavily positioned as we start hitting oversold territory - regardless of the bearish trend in place. 

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February 23rd

A rather uninspiring attempt at a rally materialised yesterday as the T40 managed to eke out a small gain. The shape of the candle however suggests that the bears had the last word as the market ended down on its intraday high. All-in-all it was a relatively tight-range day though as the stochastic continues to worm its way down.

We remain above the 43,400 level for now but this level needs to hold today to prevent further downside towards 43,000 and the bear channel floor at around 42,400. 

On balance we again will favour the short-side on an intraday basis especially below 43,400. Broadly we'd look at the 43,400 to 44,000 as the consolidation zone, below 43,400 as a zone where the bears have control and the bulls would need to regain 44,000 to put in a case for further upside.

****

Yesterday's intraday action was fairly slow and after a late US rally triggered a number of stop positions, we ended up eking out 0.1xR profit for the day - pretty much a break-even performance.

****

On the portfolio we had an end of day stop out on our SAP long position for a 1xR loss as the trailing stop was triggered and overall open downside risk is now at 3.0% with a 4.8 potential reward-risk. Our RaR decreased marginally to 2.63 (2.72) and with us a bit heavy on the short-side exposure, we identified another long setup to add into the mix to balance things a bit more and to bolster the RaR:

RES has had a good run since mid-January and on 15 Feb it managed to generate a 3LB above its previous swing high close achieved in November 2014. This was confirmed yesterday and we would now look for an entry at around R127.18 with a  stop in as a close below the previous swing low at R122.00. We are looking for projected targets at R134.50 and then R144.00 yielding a target reward-risk of 2.33-1

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February 22nd

The T40 actually had a positive week but ended substantially off its high watermark as can be seen by the long wick on the weekly candle. The stochastic now appears to have peaked forming a higher high and again, similarly to last week, the market would need to put in a massive effort to surpass the 45,000 last week's high to prevent the emergence of a negative divergence lower high price peak in the medium-term. Also, slowly but surely the negative crossover of the 21 week and 89 week continues to approach as price remains below the 89 week EMA.

On the daily chart, we can see the overbought stochastic starting its move down again following Thursday's reversal candle and the follow through with Friday's bearish move with bearish divergence. 

There appears to be some momentum behind this move and the expectation is for follow through to the downside in the new week. However, it worth noting that its not all necessarily a straightforward down-hill run from here. There are support zones and levels along the way down and the T40 could see some early week support off the 43,400 and the 43,000 levels as a starting point. (Again we must also bear in mind the potential for a late month rally as this has been the norm over the past few months as we noted last week)

But on balance, we will start the week with a bearish bias and consequently our focus will be on maximising exploitation of short setups - particularly below the 43,000 level with an eye on the major support zone between 41,500 and 42,000. 
                                                                     ***
The CFD portfolio as at the end of last week now has 3.7xR open downside risk with a 4.1xR potential reward-risk. The RaR has also improved to 2.72 (2.27). Being well-positioned in this way is allowing us to explore another short setup on VKE which actually came online a few days back but now provides an even better entry opportunity for a smallish position which is very complementary from an overall portfolio perspective providing an attractive risk and reward proposition:

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Underdog Perspectives 15 - 19 February 2016

19 February 2016

After attempting to maintain upwards momentum towards the 45,350 level, the bulls were exhausted on an intraday basis and selling into the afternoon forced the T40 down to a close below the 44,500 support level. This is significant from a  number of perspectives:

• We're starting to see a stochastic reversal from overbought territory
• Should yesterday's high water mark be indicative of a swing high there is some negative divergence being displayed with the stochastic making a lower high and price making a higher high
• The daily candle is in the sell zone between the moving averages and with a long wick to the top and a close near the day's low, this appears to be a reversal candle.
• The market effectively stalled and appears to be reversing off a key fibonacci level

Putting all of this together along with our comment yesterday that the 45,350 was key for an end of week close (which now appears remote), would suggest that the 'jet fuel' has been - at least temporarily exhausted and that we could see some downside being on the cards here.

In fact, the T40 is displaying some key characteristics for a portfolio short position, so we entered one last night as marked up on the charts and off the back of the rationale set out above. Entry was at 44,333 with a stop in as a close above 46,701 and downside targets at 41,247 and then 39,800. This is clearly not an overnight trade but we will monitor and manage it as we do all our portfolio positions. Our target reward-risk is 1.8-1.

Tactically, on an intraday basis we will look tot he short side for the most part. Any long trades would be completely counter-trend and treated as such.

***********

Intraday saw us net a 0.6xR loss but we do have 2 overnight short positions in place which we'll monitor and look to take profit on during the course of the day.

                                                                  ***********

Quite a few changes played out on the portfolio front. The trailing stop on our GND short position was triggered intraday for a 1.5xR profit.  This was however offset by and end of day close out on our IPL short which also triggered its stop loss level resulting in a 1.5xR loss. At the moment, our RMH position is also looking vulnerable and unless it can share in anticipated market weakness today, we may see that closing out as well.Finally, we entered the new T40 short as set out above. The impact of all of these along with the normal stop tightening trade management processes has been to reduce open downside exposure to 1.5%  (2.6%) at a healthy 4.5-1 potential reward-risk level. Our RaR has also reduced to 2.3 (4.1). It is tempting, given the portfolio positioning to add via some setups which have landed on the table but as noted yesterday, we're still in the process of bringing some management changes into play so again we'll just continue to manage our positions. No rush!

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18 February 2016

Yet another bullish day on the markets with the T40 now up 6.5% in 4 days. The index also managed to regain the key 44,500 support level. But with the stochastic now in overbought territory - although still very firmly bullish - and the T40 closing virtually on a dime at the 61.8% retracement level of the high low for the year-to-date, it's going to be key for the bulls to maintain momentum. 

To this end we could now start eye-balling the 45,350 level as a weekly close above that level would constitute a positive 3LB on the weekly chart, negating (at least for the moment), the 5 month downward trend we've been highlighting using 3LB charts. But with 750 points of headroom, in overbought conditions and a continued negative EMA21/89 condition,  this could be a tall ask for the bulls...

From a tactical perspective, we'd be comfortable riding momentum up to the 45,350 level but any short-side breaking - especially below 44,500 would be an opportunity to catch a piece of any downward move. 

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Intraday was again a muted affair with a net 1xR loss on all positions.  With the big moves over the past few days, it's almost a  relief not to have overnight positions running in the market at the moment.

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Portfolio trading saw us close out our INL short position for a 2.3xR loss with another close above the stop. Thee's an argument to be made in post-trade analysis and based on some development work that the stops on these 3LB end of day trades are too tight (we currently position them on the opposing end of our trigger candles as opposed to the setup candles) so that may be a minor amendment we look to bring online shortly.

We also managed a solid entry into the RMH position highlighted late yesterday, coming in at R57.91. For the balance, we have tightened a number of existing position stops as well with the result that our open downside risk has remained fairly flat at 2.6% (2.4%) but our potential reward-risk has shot up to 5.2xR. Our RaR has also benefited from these changes moving up to a substantial 4.1 level. For now we're standing pat on our positioning as we've brought some money-management criteria into play which caps overall CFD gross long-short portfolio exposures at a lower level but we are fairly comfortable with how we are currently exposed. The focus is now on maintaining better consistency - especially on our RaR levels as the portfolio turns over.

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17 February 2016

Some abbreviated posting today on the back of some illness. On an end of day basis, yesterday saw the 44,500 resistance level broken and then the sellers managed to push the price back down with a close back beneath this level. Even though the stochastic is still heading upwards, we have what looks like a daily long-wicked reversal candle in place and a follow through from this could see a move back down to the 43,400 support level. Also if the stochastic stalls here, we could see some negative divergence being exhibited on a daily basis. The bulls would need to take out yesterday's high water mark to negate this.

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Intraday was a fairly flat situation with a 50% win-rate on 2 trades closed out and a break-even result. We do have 1 overnight short position which we continue to monitor though.

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Similarly on the portfolio front there've been no changes. We decided to continue to hold INL as it ended weaker into the close. Today will be critical for this share to see if it can resume its move back down. Open downside exposure is now at 2.4% with a target reward-risk of 3.67-1. 

**LATE update**

Looking at the analysis of RMH, we can see how the its moved into overbought territory with the major downtrend still remaining in place. Yesterday saw a bearish candle being painted allowing for an opportunity to get short at current levels and potentially look to target the R49.00 and R46.00 level again. With the stop in above R60.10 this is a decent target reward-risk of 4.5-1

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16 February 2016

Another solid bullish candle saw the T40 break through 43,400 and move all the way up to the higher resistance levels noted yesterday. The stochastic still appears quite bullish with room to spare before it would be regarded as being overbought. 

With momentum still in place, tomorrow will see whether the bulls can follow through and start pushing the T40 to a break through the descending and lateral resistance levels - in which case, the next structural resistance level would come in at around the 45,300 level. Alternatively a failure on this break could see some consolidation with a potential move back down towards 43,400. Worth noting that the daily candle ranges for February have to date exceeded an average of 1,000 points for the month to date and large daily moves have become the order of things to date making early session setups quite a profitable prospect. 
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On that note, we've not really caught much of these moves over the past few days with our setups. Today saw us nett a 1xR loss for our efforts. Not by any means damaging but it can be frustrating to watch opportunities go amiss. Important in these situations to maintain focus and discipline - new chances will come!
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On the portfolio front, we have struggled a bit more with another short closeout on DTC coming through today (4 days/2.1xR loss) and potentially a closeout on our INL position being on the cards for tomorrow. Consequently, our open downside risk is now at 2.1% and despite the potential reward-risk of 4-1, our RaR has deteriorated greatly to a very modest 0.3 -1. With no long position setups being presented to complement the SAP long we flagged yesterday and managed to enter today, we did manage to find a short setup in a stock which appears of late to be displaying a relatively low level of correlation to the balance of our open positions. 

The COH short noted has a target entry at R40.22 or better with a stop in as a close above R42.50 and downside targets at R37.10 and R34.20 yielding a target reward-risk of 2-1.

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15 February 2016

A solid bearish move over the course of the week despite a late week rally on Friday. Last week we highlighted the bearish channel in which the T40 was moving and the market broke out of the bottom of this formation quite convincingly moving all the way down towards the major support zone between 41,5000 and 42,000 before finding a substantial bounce on Friday, again moving to test the 43,400 resistance level. 

Looking at the week ahead, there are a few elements to keep an eye on. The weekly chart shows a fairly neutral stochastic with the potential for forming a fairly low higher high top if the bulls cannot push convincingly forward on a weekly basis. So if last week's high cannot be challenged on the T40, we could see the makings of some weekly negative divergence in the making (price would be making a lower high). Also worth noting - as we've noted in the past - is the fact that the 21 week EMA is getting very close to crossing the 89 week EMA - the last bearish crossover like this was seen in September 2008. On the flip-side, we need to remember - as highlighted in the start of the month post - that the T40 has tended to rally into month-ends over the past few months. 

On the daily chart, we can see now how the stochastic is coming off oversold conditions and is threatening to start moving upwards fairly sharply. This is mainly on the back of a very bullish daily candle painted on Friday. However, we're once again in the overhead resistance zone between 43,000 and 43,400 and the bulls will need to push ahead off Friday's momentum to break through here and try and make in roads on the higher placed lateral and descending resistance levels. Failure to do so would start confirming the negative divergence noted on the weekly chart analysis above with downside potential back into the 41,500 - 42,000 support zone.

On balance we have the makings of yet another tricky trading week ahead. Again we would look to trade the range between 42,000 and 43,400 but on further strength we could look for potential longs on a break above the 61.8% retracement level towards 44,500 (with a wary eye on the descending resistance line)

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Following Friday's rally and a close-out of the PPC short position on Friday (a  break-even exit), downside risk exposure is now at 3.3% with a target reward-risk of 2.97-1 factoring in the DTC short position which is under risk with a close above its stop level on Friday. (We would look to close this position down if it fails to start moving down on Monday.) Potential RaR has also increased to 2.36 from 1.41 so the potential for the current positioning looks solid enough. Given the high level of short-side exposure, with capacity in hand and a long setup opportunity presenting itself, this is the one we'll be looking at for tomorrow:

SAP has been one of the stronger stocks on the market and has been in a solid uptrend over the past 5 months. The daily stochastic has now moved oversold though and with the painting of a bullish candle on Friday, this presents an opportunity to get onto the longer-term trend. So we're aiming to enter at around the R67.98 with a stop in as a close below previous structure low at R63.79 and targets at R79.40 and R84.00

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