Welcome to TheMarket.co.za Weekly Analysis Report Date of Issue: 04 October 2012 By Colin Abrams Contents: Intro and Exec Summary 1.Market Charts 2.Small-Cap Chart
3. Relative Strength 4. Notes & Updates 5.“Shortable” Stocks/Indices
6. Overall Summary 7. Glossary (in first letter of each month)
Classic Trading Rule: “Don't anticipate. Wait until the market gives you clues, signals, and hints. Move only after you have confirmation.”
FINDI STOCKS LEAD NEW RALLY Introduction: Please note, we are having emailing problems, so if you don't receive the regular alert email for the newsletter, it can always be downloaded on our homepage by clicking Login (top right corner). We are working on the problem. Thank you for your patience. Concerning the markets: A new rally is underway with financial and industrial stock leading the way again,. We show the Findi 30 chart, with a minimum target for it. There's a good chance the All Share index will get to new highs, but, as before, resources are still a drag on it. The overall picture is still positive though and I expect it to remain like that until after the US elections in early November. The Dow chart shows it building up for another rally, and the JSE All Share index is already continuing up again. This being said, a healthy sense of caution is still advised because we are approaching the end of a four-year bull market in stocks. We then show the Findi 30 index chart, currently breaking out. And then a currency chart of the GBP/USD is shown, with a significantly higher target for the GBP. The stock charts looked at are: Netcare (new buy/re-entry signal), Discovery (edging cautiously higher again), and Truwths (a bullsih pattern). The small-cap chart is CMH that is currently breaking out of a two year consolidation pattern. Overall, I’m expecting the market to remain firm (with minor pullbacks, of course) into November, and very likely the end of November. The focus is still on buying pullbacks, but in findi stocks, and no large positions are advised. Take partial profits quite early to reduce your risk, because we’ve had some volatile pullbacks of late. Your main aim as a trader is to take profits after good short-term runs. Executive Summary:
Dow (chart 1): Hold current long position. Buy/add to on a close above line 4 (13 650). All Share Inx (chart 2): Traders buy, on 2-3 day pullbacks, focusing on findi stocks. Findi 30 Inx (chart 3): Buy leading findi stocks (or SatrixInd) for another rally. GBP/USD (chart 4): Buy at 160.90. Pullbacks will remain buyable all the way up. Netcare (chart 5): Buy at current levels for another short-term rally Discovery (chart 6): Buy some now. If it pulls back to below R55 buy the second part of this position. Truwths (chart 7): Buy now, and the rest on a close above line 1 (R98.40). CMH (chart 8): Buy at current levels, and again if it pulls back towards R11.00. Leading Stocks (3-mths): Top 40 – Old Mutual, Woolies, Naspers-N, MondiPlc, Richemont, Assore, Aspen Resources 10 - BHPBilliton, Sasol, Implats, Gfields, Anggold.
Shortable stocks/indices: 15 stocks, 0 indexes, 1 commodity, 1 currency.
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1. MARKET CHARTS DOW JONES – Cautiously still bullsih Broad Recommendation: HOLD LONGS/BUY Trend: Short and med-term up. Long-term sideways to up. Strategy: Hold current long position. Buy/add to on a close above line 4 (13 650). Chart 1. (Daily) 100 90 80 70 60 50 40 30 20 10 0 13950 13900 13850 13800 13750 13700 13650 13600 13550 13500 13450 13400 13350 13300 13250 13200 13150 13100 13050 13000 12950 12900 12850 12800 12750 12700 12650 12600 12550 12500 12450 12400 12350 12300 12250 12200 12150 12100 12050 12000 23
OVERBOUGHT
Stochastic Oscillator (49.6713)
100 90 80 70 60 50 40 30 20 10 0
OVERSOLD I-DJ-INDU (13,437.66, 13,598.25, 13,437.66, 13,515.11, +20.5000)
13950 13900 13850 13800 13750 13700 13650 13600 13550 13500 13450 13400 13350 13300 13250 13200 13150 13100 13050 13000 12950 12900 12850 12800 12750 12700 12650 12600 12550 12500 12450 12400 12350 12300 12250 12200 12150 12100 12050 12000
4 3 2
1
50-DAY MOVING AVE
30 May
7
14
21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
24
1 3 Oct ober
10
17
Chart Setup: A nice reversal candle up last Tuesday was a buy signal we were looking for from last week’s comments. But the Dow has been moving sideways over the past four weeks and is building up for another rally. It can still be bought. Lines 1 and 3 form a rising channel. There is solid support formed by line 2, line 1 and the rising 50-day moving average (13 340). The short-term Stochastic Oscillator (on top) is oversold, and is setup for a rally. Strategy Details: Hold current long positions. If not in, buy if it dips closer to recent lows at 13 390. Traders can also add to current longs (but not aggressively) on a close above line 4 (13 650). Target: A close above 13 650 sill set up a rally to 13 900, very near line 3 resistance. Stop-loss: Current stop is a close below 13 325. Once it closes above line 4 (13 650), move the stop up to a close below 13 430. As it nears the 13 900 target, narrow the stop to a breaking of its prior two day low to protect profits. ii
JSE ALL SHARE INDEX – Uptrend continues Broad Recommendation: BUY PULLBACKS (WITH CAUTION) Trend: Short-term sideways to up. Med and long-term up. Strategy: Traders buy, on 2-3 day pullbacks, but with caution, focusing on findi stocks. Chart 2. (Daily) OVERBOUGHT
100 90 80 70 60 50 40 30 20 10
Stochastic Oscillator (71.0961)
370
Mov ing Av erage (355.598), JSE-OVER (362. 480, 362.800, 361.170, 361.200, -1.28000)
100 90 80 70 60 50 40 30 20 10
OVERSOLD
370
MED-TERM TARGET 365
365
360
360
3
355
350
355
350
2
345
345
340
340
50-DAY MOVING AVE 335
335
330
330
1
325 26
325 2 10 April
16
23
30 7 May
14
21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
25
1 8 Oct ober
15
Chart Setup: The All Share reversed up off it's rising 50-day moving ave, and as things stand, it has not formed a head and shoulders pattern, which would be bearish (discussed last week). It's got within 50 points of the upside target so far, and can still get there (36 700). The short-term Stochastic Oscillator (on top) still has more short-term upside potential. Strategy Details: Short-term traders buy minor (2-3 day) pullbacks here (alsi future), and in findi stocks (see next chart). Caution is certainly still advised though i.e. no large positions. As mentioned in recent weeks, I believe we’re heading into a major market top (within the next 8 weeks if not sooner). Target: The target is 36 700-37 000. It’s so far got to 50 points short of 36 700. It can certainly retest that level, and even move closer to 37 000. To the downside, a close below 35 500 (below line 3) will be potentially bearish (but not to be shorted just yet, if it does happen). Stop-loss: For short-term longs, it’s a close below line 3. (The exact level of line 3 is 35 505 on Thurs 4th and it's rising at an angle of 20 pts per day thereafter). Narrow the short-term stop to a breaking of its prior two day low if the index trades back above 36 600.
iii
JSE FINDI 30 INDEX – New upside breakout Broad Recommendation: TRADERS BUY/RE-ENTER FINDI STOCKS Trend: Short-term technically sideways, but improving. Med and long-term up. Strategy: Buy leading findi stocks (or SatrixInd) for another rally. Chart 3. (Daily) OVERBOUGHT
MACD (1.69437)
6 5 4 3 2 1 0 -1
6 5 4 3 2 1 0 -1
OVERSOLD JSE-F IN30 (397.030, 397.970, 395.450, 397.420, +0. 39001)
MINIMUM S.T. TARGET
405
405
400
400
3 395
395
390
390
2 385
385
380
380
1
375
375
370
370
365
365
360
360
50-DAY MOVING AVE
355
355
350
350
TO OCT 2011 21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
25
1 Oct ober
8
15
Chart Setup: Last week we showed the findi 30 index versus the resi 10 index. The above chart is the findi 30 itself. It's now breaking out of a short-term ascending triangle (lines 2 and 3), and has a new higher target in place. It is still trading well above its longer-term supporting trendline, line 1. Its daily MACD (on top) is also turning up from an oversold level, and is crossing its trigger (dotted) line, to give a new buy signal. Strategy Details: Traders only, buy (or re-enter) strong findi stocks i.e. the ones that are in clear uptrends. (One way of finding them quickly is to refer to the Strongest seven Top 40 stocks (page ix). Another way of capitalising on this is to buy the SatrixInd, which looks almost identical to the Findi 30 index at the moment. Target: Minimum upside target is 40 735, based on the height of the triangle projected up. (The current level of the findi 30 index is 39 750). Stop-loss: For short-term traders, the stop is a close below line 2. (Line 2 is at 39 100 on Thurs 4th, and its rising at an angle of 40 pts per day thereafter). Med-term traders keep your stop as a close below line 1, currently at 38 500. We will advise to narrow that in the weeks ahead. iv
GBP/USD – Important breakout, higher target Broad Recommendation: BUY PULLBACKS Trend: Short and med-term up for GBP. Long-term sideways. Strategy: Buy at 160.90. Pullbacks will remain buyable all the way up. Chart 4. (Daily) 100
OVERBOUGHT
Stochastic Oscillator (26.4703)
100
50
50
OVERSOLD
0 173
0 173
C-GBP-$ (161.100, 161.300, 160.600, 160. 900, -0.80000)
TARGET
172
172
171
171
170
170
169
169
168
168
167
167
166
166
165
165
2
164
164
163
163
162
162
161
161
160
160
159
159
158
158
157
3
157
156
156
155
155
154
154
1
153
153
152
152
151
151
150 Nov ember
150 2011
February March
April
May
June
July
August
September
Nov emberDecember2012
February March
April
May
June
July
August
September
Chart Setup: A significant development took place here a couple of weeks back as the GBP broke out of a large declining channel (lines 1 and 2) against the US dollar. This points to a significantly higher target to come over the med-term, if not longer. In the immediate short-term, the Stochastic (on top) should drop further before becoming oversold for the Pound. But thereafter it will be back up again for the currency. Strategy Details: Buy the GBP/USD as it pulls back to 160.90 or lower (on a reversal up). Med-term players to then hold throughout; but short-term traders to buy on minor pullbacks, and take profits after good short-term rallies. Use this strategy all the way up to the eventual target. Target: 171.00, based on the height of the channel projected up. It's currently trading at 161.16. 200-DAY MOVING AVE
Stop-loss: Initial stop is a close below line 3, currently at 158.70. For short-term traders, once it rallies and closes above its recent high (163.30), raise your stop to a close below 161.90. Med-term keep the stop below line 3 for longer, to give it more time and space.
v
NETCARE (NTC) – New buy signal Broad Recommendation: TRADERS BUY/RE-ENTER Trend: Up on all main timeframes. Strategy: Buy at current levels for another short-term rally. Chart 5. (Daily) OVERBOUGHT
100 90 80 70 60 50 40 30 20 10 0
Stochastic Oscillator (45.7143)
19.5
NETCARE (18. 2100, 18.6000, 18.1000, 18.6000, +0.51000)
100 90 80 70 60 50 40 30 20 10 0
OVERSOLD
19.5
19.0
19.0
3
18.5
18.5
18.0
18.0
17.5
17.5
2 17.0
17.0
1
16.5
16.5
16.0
16.0
15.5
15.5
50-DAY MA
15.0
15.0
14.5
14.5
14.0 30 7 May
14.0 14
21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
25
1 8 Oct ober
15
Chart Strategy: Netcare is a top 50 market-cap stock. In the Notes & Updates section last week we said to buy on the next clear reversal day up, and that occurred on Monday. It’s continued higher since then closing above line 3 resistance, which is another (or more confirmed) buy signal. Note how its recent short-term pullback came down to near line 1, line 2, and its rising 50-day moving ave (i.e. a triple support level), before moving up again over the past few days. The short-term Stochastic is moving up from its oversold level and still has plenty of upside potential before becoming overbought. Strategy Details: Traders buy at current levels if not it. Target: Take partial profits at R19.40 and the rest at R19.80. Stop-loss: Initial stop is a close below R17.75 (line 2). From R19.40m raise the stop to a breaking of its prior three-day low. Once it gets closer to R19.80, then adjust to its prior two day low (while taking profits as advised above). vi
DISCOVERY (DSY) – Edging cautiously back up Broad Recommendation: TRADERS BUY (WITH CAUTION) Trend: Short-term technically still down. Med-term sideways to up. Long-term up. Strategy: Buy some now. Then, if it pulls back to below R55 buy the second part of this position. Chart 6. (Daily) OVERBOUGHT
MACD (-0.10181) 1.0
1.0
0.5
0.5
0.0
0.0
OVERSOLD
-0.5 DISCOVERY (55.8000, 56. 5100, 55.3400, 56.0100, +0.20000)
62.0 61.5 61.0 60.5 60.0 59.5 59.0 58.5 58.0 57.5 57.0 56.5
-0.5
H
62.0 61.5 61.0 60.5 60.0 59.5 59.0 58.5 58.0 57.5 57.0 56.5
S? S
56.0 55.5
56.0 55.5
55.0
55.0
54.5
54.5
54.0
54.0
53.5
53.5
53.0 52.5
53.0 52.5
1
52.0
52.0
51.5
51.5
51.0
51.0
50.5
50.5
50.0
50.0
49.5
49.5
49.0
49.0
48.5
48.5
48.0
48.0
50-DAY MA
47.5
47.5
47.0
47.0
46.5
46.5
46.0 27
46.0 5 March
12
19
26
2 10 April
16
23
30 7 May
14
21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
25
1 8 Oct ober
15
Chart Setup: Discovery is trying to recover after a sharp sell-off n last August. It is forming a “potential” head and shoulders (as labelled S-H-S?), but as long as line 1 holds, the benefit of the doubt is still to the upside. The daily MACD (on top) is moving up from an oversold level and is therefore bullsih. Shorterterm oscillators are overbought. Strategy Details: While there are some conflicting signs here, my bias is still to the upside. Buy some at current levels, and if it pulls back to below R55 then buy the second half of this position. No large positions are advised overall. Target: Traders take partial profits at R58, more at R58.50, then leave some on for a potential move to R59.50. Stop-loss: Initial stop is a close below line 1 (R53.50). Once it reaches R58, raise the stop to a breaking of its prior three-day low, and take profits as advised above.
vii
TRUWTHS (TRU) – Bullsih chart pattern forming Broad Recommendation: PREPARE TO BUY Trend: Short and med-term sideways. Long-term up. Strategy: Buy some now, and the rest on a close above line 1 (R98.40). Chart 7. (Daily) 100
OVERBOUGHT
Stochastic Oscillator (71.9652)
100
50
50
POS DIVERGENCE
0
OVERSOLD
0
TRUWTHS (96.0000, 98.4100, 96.0000, 97.6000, +1. 31000)
112 111 110 109 108 107 106 105 104 103 102 101 100 99 98
112 111 110 109 108 107 106 105 104 103 102 101 100 99 98
BREAKOUT TARGET
1
97 96
97 96
95
95
94
94
93 92
S
93 92
S?
91
91
90
90
89
89
88
88
H
87
87
86
86
85
85
84
84
83
83
82
82
81
81
80
80
200-DAY MA
79
79
78 7 May
78 14
21
28
4 June
11
18
25
2 July
9
16
23
30
6 August
13
20
27
3 10 September
17
25
1 8 Oct ober
15
Chart Setup: After a steady decline in August, Truwths is now forming an inverse head and shoulders (labelled S-H-S?), and needs to close above line 1, the neckline to confirm this pattern. The short-term Stochastic is relatively overbought, but if the inverse head and shoulders confirms, that will take greater preference. Strategy Details: Buy now, and buy the remainder of the position on a closing price above R98.40 (line 1). (This might happen today). Target: A close above line 1 will set up a minimum target to R109.90 i.e. the height of the inverse head and shoulders projected up. Stop-loss: Initial stop is a close below R93.30. Once the once gets to R107, take partial profits and use a breaking of its prior three-day low as stop. And then prior one-day low as its nears the R109.90 target.
viii
2. SMALL-CAP. CHART CMH (CMH) – Important bullsih breakout Broad Recommendation: BUY Trend: Short and med-term up. Long-term sideways. Strategy: Buy at current levels, and again if it pulls back towards R11.00. Chart 8. (Weekly) 100
OVERBOUGHT
Stochastic Oscillator (89.2473)
100
50
50
OVERSOLD
0 16.5
CMH (11.7500, 11. 8000, 11.5500, 11.8000, +0.05000)
0 16.5
MINIMUM TARGET
16.0
16.0
15.5
15.5
15.0
15.0
14.5
14.5
14.0
14.0
13.5
13.5
2
13.0
13.0
BREAKOUT
12.5
12.5
12.0
12.0
11.5
11.5
11.0
11.0
10.5
10.5
3
10.0
10.0
1
9.5
9.5
9.0
9.0
8.5
8.5
8.0
8.0
7.5
7.5
50-WEEK MOVING AVE
7.0
7.0
6.5
6.5
Jun Jul
Aug Sep Oct
Nov Dec
2010
Mar Apr
May Jun Jul
Sector: Vehicle Distributors
Aug Sep Oct
Nov Dec
2011
Mar Apr
May Jun Jul
Aug Sep
Oct Nov Dec
2012
Mar
Apr May Jun
Jul Aug
Sep Oct
Nov Dec
Price: R11.80
Chart Setup: After consolidating for the past two years in a broadening formation (lines 1 and 2), CMH has now broken to the upside to renew its rally that started at its 2008 low. The weekly Stochastic (on top) is overbought, but I’m giving the price breakout greater weight. Strategy Details: Buy now, to get a line in. If it pulls back closer to R11, then add to that position. This is a med-term+ trade. Target: Minimum target is R15.80 measured as the height of pattern 1-2 projected up. Stop-loss: Initial stop is a weekly close below line 3 (R10.10). Once the price closes above R14 on a daily close, raise your stop to breakeven (i.e. your entry level). Other small-caps of interest (alphabetically): (shares to consider on a pullback) Long: Adaptit, EOH, Metrofile, Octodec. ix
3. RELATIVE STRENGTH These are the strongest index stocks on a 3-month basis relative to the JSE All Share Index. Typically the leading stocks keep leading. Therefore, traders can buy these stocks on pullbacks, although always look at the chart first before making a decision. Medium and longer-term players should look to buy them when they first appear on this list. We've also included the weakest index stocks. These can either be shorted on bounces (if in a downtrend), or traded as a "pairs trade" against the strongest stocks i.e. go long a strong stock, and sell short a weak stock at the same time. Strongest seven Top 40 stocks: Old Mutual, Woolies, Naspers-N, MondiPlc, Richemont, Assore, Aspen. Weakest seven Top 40 stocks: Lonmin, Exxaro, Kumba-IO, Harmony, Anglo, Amplats, ARM. Strongest five Resi 10 stocks: BHPBilliton, Sasol, Implats, Gfields, Anggold. Resi 20 vs. Findi 30 over 3-months: Findi 30 stronger (only slightly).
4. NOTES & UPDATES: - Concerning last newsletter’s index stock charts: -
-
Woolies: triggered the upside breakout of the triangle shown last week. It’s so far doing nicely. Keep holding. Minimum target is 66. Stop is a close below 58.10. Imperial: it broke down below support and triggered the short signal shown last week. I don't feel confident about this short signal though, even though the price has dropped slightly. My preference is to exit this trade for an approximate breakeven (or ‘scratch’) trade. If you want to keep it on, use a breaking of its prior one day high as your stop. Take at least partial profits at 181.50 if reached. To the upside, if it rallies to close above 191 that will be a new buy (long) signal. Kumba-IO: this short trade is doing well so far. Keep holding short. Downside target is R447, but take half shorting profits at R456.75. From there, use a breaking of it's prior one day high as the stop on the remainder. Lower current stop to a close above 503.80.
Other recommendations and index stocks of interest (alphabetical order): Important Notice: When buying after a pullback or selling short after a bounce, always look for a sign of a reversal e.g. reversal day or reversal candle before entering (otherwise one is simply picking a top/bottom, which does not work). A reversal day/candle at the top is typically when the price rallies that day but then sells off to close near the bottom of the day’s range. Conversely, a reversal day/candle at the bottom is when the price initially drops that day, but then rallies back to close near the top of the day’s range. Waiting for the reversal day will put the odds back in your favour. (I usually like to see the high/low of the reversal day taken out the next day before finally entering i.e. the entry ‘trigger’). - Regarding taking profits, I suggest locking in profits in thirds as the price moves in your favour i.e. 1/3 of your position, then another third then the final third. High probability trades (or charts), other than Charts 5, 6, and 7, that I particularly like (long or short) at the moment (in no particular order. See comments below):
x
-
Tigbrands, Richemont, Sanlam, BATS, Remgro.
-
Absa: the first profit target was reached for half profit taking as advised. It's got within 10c this morning of the 142 target for taking remaining profits (which is close enough). It can still continue higher but I’m happy to exit this trade for the profit. No new trade here right now but my bias is to short but not yet. It can move closer to 144 but no short signal yet at all. Amplats: it made a new low yesterday and is firmly still in its downtrend. Rallies are still shortable as a general strategy but not right now as it’s moved too far. Main resistance here is 445 that it needs to break out of to break its downtrend. No trade here right now. Anggold: its support in he immediate short-term at 283. A reversal day up from there will be a buy signal, but with great caution. It’s not had follow though from a recent breakout. The stop on the current trade is still a close below 277. It needs to close above 298 to get going again. That will take it to 316. For now the 339 target is in some doubt. Anglo: has moved sideways over the past week, and an inverse head and shoulders breakout a few weeks ago has failed. Immediate support is 242.50. I don't see any trade here right now. It can still drop to below 240. The first bullsih sign will be a close above 254, but its still in a downtrend so there’s no reason to buy if that happens. ARM: like Anglo it gave a false breakout to the upside recently. On Monday there was a reversal candle up, which aggressive traders could’ve bought on based on last weeks comments, but yesterday’s drop will have triggered the stop there (we advised only aggressive traders can chance buying, because the trend is still down). The odds favour more downside now. A bounce to 161 and reversal day down will be a short signal, with the stop above the reversal days high. Target to 153.50 for partial profits, with further potential to 148. No large position advised here either way. Aspen: keep holding. It's broken out of the triangle shown recently. The target is 153. It needs to close above 155.50 to get going to there, and is currently finding resistance at that level. It's still a hold, and the stop for traders is a close below 140. Assore: stopped 50c short of the 335 target so far. If it closes above 334.80 that will be very bullish for further upside to 360; therefore keep some on, or buy/re-enter if it closes above 334.80. Stop will be a close below 314. BATS: it’s reached our 440 target for profit taking, but is breaking out above a resistance level and my advice is to re-enter long. New target is 480 med-term. Stop is a close below 424. BHPBilliton: it triggered the aggressive buy signal and can still continue higher to 274. Buy on a 2-3 day pullback with reversal day up. Or wait for a close above 265.50 to buy, with great caution though. Target 273-275. Current stop is a close below 251.50. Once it closes above 265.50 use a breaking of its prior 2 day low as the stop. Bidvest: it’s still in its sideways channel of the past two months. Hold. Stop is a close below 200. Target is 216. Clicks: hold, but with caution. Target is 62. Stop is a close below 55.40. Discovery: see Chart 6. Exxaro: it gave a reversal day down on Tuesday after bouncing to our shorting level. It's is still a short on bounces. The target is 146. No large positions advised because it can be a volatile stock. Stop is an intraday break above 166.60. Firstrand: has continued up nicely, breaking above short-term resistance. The target is 29, and is not that far away from it today. Take partial profits there, but keep some on. I think it can go as far as 30.50 over the coming weeks. It's overbought in the immediate short-term. Use a trailing stop for very short-term positions as a breaking of its prior one day low to lock in partial profits. Any pullback to 27.30 will be a new ‘add to’ level. Gfields: it remains stuck in the middle of a large triangle. there is short-term support at 102.90. A close below there will be a short signal, albeit aggressive. Target to 97 but no large positions
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xi
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advised. The stop will be tight as a breaking of it prior two day high. To the upside it needs to breakout above 113 to get going. Harmony: it remains very much in a downtrend, but is oversold. Support is 65. Aggressive traders only buy on a clear reversal day up from 65, but with caution. That may well lead to a relief rally to 73.50. Stop will be a breaking of the reversal day up’s low, or a close below 65 (whichever is lower). Apart from that, no other trade here right now. If it reaches 73, a reversal day down from the will be shortable again. Imperial: see update above. Implats: it’s doing a lot better than Amplats on a relative basis. Med-term a good pairs trade is long IMP/short AMS. If Implats closes above 139, that will be a buy signal for it, but still with caution. Target then to 150. Initial stop a close below 134.50. As it nears 150 (if that trade is triggered) raise the stop to a prior one day low. InvPlc: it reversed up from last weeks buying level, although no clear reversal/candle formed. The target nevertheless is still 54-55. Stop is a close below 51.20. Kumba-IO: see update above. MrPrice: it triggered the mentioned buy signal. It's go close to our 136 target so far yesterday. Today is pulling back a bit. Keep holding. Raise stop to a close below 126. From the 136 target there’s no harm in leaving part of the position on with a trailing stop, such as a breaking of its prior one day low to allow for further upside. It can get to 140. MTN-Group: our stop/trailing stop was triggered the day before it had a sharp drop, for an approximate breakeven trade here. It's broken short-term support and can drop closer to 151. This pullback nevertheless is buyable, but closer to the 152-151 level. I’m looking for a rally then back to 164. Naspers-N: it raced through out med-term upside target of 524 for a very good profit overall. It has potential still to 440-450. But I don't think much more than that. Nedbank: it’s overbought in the short-term but is still pointing to a target of 189. Keep part of this position on still. Take more profits at 187.50. From there raise stop to a breaking of its prior two day low. Current stop is a close below 179 for traders. Netcare: see Chart 5. Newgold: triggered the mentioned buy signal from last week and has moved well into the target range and exceeding it (above 147). It's getting high so no new trade advised here. If still in one should be taking profits. Old Mutual: it’s reached and exceeded our target of 23.90-24. It can still get to 24.40/50 in the immediate short-term. From a med-term point of view a lot more caution is now advised. This stock has had a great run (half profits were already taken higher up). PPC: it’s given the short-term pullback and is oversold so look for it to resume its uptrend to the 31.15 target at any time. A close above 29 will be a new buy signal here. Target to 31.15. Stop a close below 27.80. Reinet: it gave the expected short-term pullback. Keep holding. Target to 16.40. Stop a close below 15.15. Remgro: keep holding. It's in a two month sideways range. It needs to close above 147.20 to get going. That will setup a target to 153. (it will also be another buy signal). Keep holding the current long position though. Stop is a close below 142.50. Richemont: it gave a perfect and classic reversal day/candle up on Monday right from our mentioned area. Hold. Target to 54.60. Stop for now is an intraday break below 49.88 but when it gets closer to the target (e.g. from 54) use a braking of its prior two day low as the trailing stop. RMBH: this trade is doing well. Raise your trailing stop for short-term traders as a breaking of its prior 3 day low. Look for it to get to 38.50 to take at least half profits. (No harm in locking in xii
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some profits in the meantime near 38 as its had a good run). Potential to 39.50 over the next 6 weeks. SABMiller: well, it’s continued up nicely and showing a very good profit on this trade (the advantage of diligently staying with the trailing stop). The target of 380-384 is not far away now. Start locking in profits there. Continue using a breaking of its prior 2 day low as the current trailing stop. Sanlam: it’s given the upside breakout and new buy signal. New target minimum is 39. Stop for now is a close below 37.10. once it gets to 38.50 use a breaking of its prior 2 day low as the trailing stop. Sasol: a perfect trade from last week as it rallied straight up to our target and then yesterday dropped dramatically thereafter. My bias here is still to the upside, to be buying it on pullbacks but be aware of its volatility. A reversal day up from the 364 level is buyable again (no large positions). Target is 388. Stop is a close below 358. Shoprit: reached our first target of 172 for partial profit taking as advised. The main target is still 176. It is overbought so caution advised in the very short-term. Use a breaking of its prior 2 day low as the trailing stop on the remainder of this position. Stanbank: keep holding this short trade. Target is still 101.90. Stop is a close above 107.50 but no large positions advised, as mentioned last week. Once it nears the downside target use a breaking of its prior one day low as the trailing stop. Steinhof: it triggered the mentioned buy signal. Target is 28, but lock in partial profits at 27.80. Stop is a close below 26.25 for the very short-term. Potential to 28.50 over the next 6-8 weeks. Tigbrands: it triggered the mentioned new buying signal from last week. Hold. It can still be bought if not in. A close above 278.35 will get it going higher again (its moved sideways in recent days). Lock in partial profits at 286.50 to reduce you risk. Main target is 291. Current stop is a close below 270. Truwths: see Chart 7. Vodacom: there’s a good chance of one more rally here. Look to buy/re-enter on a close above 104.80. Target then 111-112. Stop the a close below 102. Woolies: see update above.
GOLD UPDATE: The JSE gold index is forming a “potential” short-term head and shoulders, but needs to close below 23.05 (the neckline) to confirm that. If that happens, it will set up a drop back to major support at 2170. To the upside, a close above 2430 will be very positive. Its main resistance level it needs to break now though is 2520. If it can breakout and close above there that will be very bullsih. Bottom line: the gold index is still range bound. My bias is mildly to the upside. But it needs to break the levels mentioned to get going in any significant way. - Dollar gold price: what I find very significant here is the US dollar rallied over the past week, but the gold price has held up exceptionally well. It is building up for its next rally, and as mentioned last week, I don't see any significant pullback occurring here. Keep holding. Any minor pullback (which right now amounts to about $20) is still buyable. It needs to closes above $1795 to get going again (and hold there for a couple of days). Minimum target is still $1940. - Rand gold price: has had another good rally after a short-term pullback. Med-term target is still 15 100. Short-term support is 14 560, which is the current stop for traders. It is very overbought so take profits into the current strength.
5. “SHORTABLE” STOCKS AND INDICES Please note: xiii
We list the stocks and indices (local and overseas) that are in short-term (at least) downtrends, and that can be sold short (see Glossary for definition) on rallies to resistance. Selling short can be done via single stock futures, CFDs, spread trading, and/or put warrants. One way of trading these stocks/indices is to sell short rallies to the falling 20-day moving average (in stronger downtrends) or the falling 40-day moving average (in more gradual downtrends). These moving averages tend to act as resistance. Wait for a downward reversal at the moving averages before selling short. NOTE 1: ALWAYS USE PROTECTIVE STOPS ON ALL POSITIONS. Selling short is for shortterm traders only, and all positions must be monitored closely. NOTE 2: The instruments on this list are not automatic shorts, but it is a starting point for looking. Always look at the chart first before making a final decision. Shortable Stocks: (as of 04 Oct. ‘12) Price (R) 20-Day MA: 40-Day MA: ARCMITTAL ASTRAL AVENG BARWORLD BASREAD EXXARO HARMONY IMPERIAL JSE KUMBA-IO LONMIN MASSMART REUNERT STANBANK TELKOM
39.7000 103.0000 31.2900 70.0500 8.5500 158.4000 67.1000 185.2500 71.2500 477.9100 72.8600 166.8700 70.8000 104.8000 17.8200
42.2380 104.1835 31.3280 74.7650 8.5825 163.2265 71.4445 193.0040 71.2715 499.8760 78.6075 167.6135 71.8285 106.1440 18.5050
43.1560 106.3305 32.1080 75.0567 9.5205 166.8115 74.8978 195.2892 72.2915 514.3695 81.9010 168.3033 73.2473 109.6158 18.9805
Currencies/Commodities:
Price
20-Day MA: 40-Day MA:
M-BRENT
111.4500
113.0400
113.9135
C-$-JYEN
78.1100
78.1490
78.4775
OVERALL SUMMARY The JSE is continuing higher again led by findi stocks. Resources stocks continue to lag, and a recent rally there was not able to have significant follow through. Once resources stocks can establish a proper uptrend again, there will be plenty of opportunities to buy them. For now, that is still a while away. The markets are climbing the proverbial ‘wall of worry’, and that is good for now. But as mentioned in recent weeks (and months), after the US elections one should be looking for a major top in world stock markets, including the JSE. For now the going is still good, but with caution as we head up into that market top.
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I’m expecting some incredibly good shorting opportunities to line up in 2013, which we will discuss closer to the time. For now, commodities like gold and silver in particular, still look very positive. Sincerely, Colin Abrams TheMarket.co.za PS: Remember: Protective stops on all positions! NEXT COURSE DATES: JOHANNESBURG: Course 1: Technical Analysis - 14th October 2012 (Sunday) Course 2: Advanced Technical Analysis and Money Management - 28th October 2012 (Sunday) Course 3: Developing Trader Discipline (Trading Psychology) - 26th October 2012 (Friday) Please email us soon if you’d like to attend –
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GLOSSARY OF TERMS USED IN TheMarket.co.za NEWSLETTER:
Bearish/Bullish Engulfing Pattern: A candlestick whose entire body ‘engulfs’ the body of the prior candlestick. Is bearish if found after a rally; or bullish if found after a drop. Bottoming tail: A price candle where the price falls sharply from the open, but then recovers to rally strongly into the close. A bullish sign. (Japanese) Candlesticks: Price bars (called ‘candles’) which accentuate the open-close relationship. Is an alternative to the Western bar-chart. CFDs: (Contract-for-difference) is a leveraged instrument, like a futures contract except there is no expiry date, and one trades the underlying itself, not a derivative of it. Closing price (or the 'close'): the last price of the specific time period chart e.g. last price of the day for a daily chart. If trading on the close, either execute your trade just before 5pm (if the specific signal is triggering), or first thing the next morning. Countertrend: 'going' (trading) counter to the main trend. E.g. if the main trend is up, then a countertrend trade will be to sell short. (Note it is always risky to take a countertrend trade, and generally not recommended. Remember, 'the trend is your friend'). Doji candle: A price bar (candle) where the opening price is equal to the closing price. Denotes indecision. Typically precedes a trend change. Double top: Refers to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise – all occurring after a significant rally. Bearish. Elliot Wave Theory: Each trend is made up of five waves in the direction of the main trend. (It can be further subdivided into the same sequence of waves on a smaller time frame). Fibonacci retracement level: A point where prices typically find resistance/support when retracing a prior move - the most significant is 61.8% (others are 38.2%, 50%, 78.6%). xv
Fibonacci extensions: Using Fibonacci numbers (e.g. 61.8%, 161.8%, 261.8%) to project future price targets (or reversal areas) based on the length of prior price swings in a particular stock Gravestone Doji: A candlestick that rallies sharply after the open, but then reverses down and closes at same level as the open (which is at the low of the bar). Looks like a gravestone. Bearish. Head-and-Shoulders price target: the minimum target is the height of the pattern to the “neckline” projected downwards from the breakdown point. Long position: Opposite of selling short i.e. buying because one expects the price to rise MACD: stands for Moving Average Convergence/Divergence. Is the difference between a 12-day and 26-day exponential moving average, plotted as a single line. Shows price extremes. Negative Divergence: Is typically a bearish sign occurring when an indicator (e.g. RSI) fails to make a high, but the price itself does i.e. setting up a divergence between the indicator and the price. Overbought: an area on an oscillator that typically indicates when more buying than selling (which has pushed prices up) is reaching an extreme level. A fall or correction is then due. Oversold: an area on an oscillator which typically indicates when more selling than buying (which has forced prices down) is reaching an extreme level. A rally is then due. Pivot high: A high, with a lower high on either side of it. Pivot low: A low, with a higher low on either side of it. Positive Divergence: Occurs when the price makes a new low, but the indicator does not i.e. setting up a divergence between the price and the indicator. Bullish. Relative Strength (or ‘Ratio’) Analysis: comparing one market or stock to another to see which is outperforming on a relative basis. Not to be confused with Relative Strength Index (RSI). Resistance: A level above the market where selling is greater than buying (i.e. supply). Reversal Bar (Day): Occurs when the price makes a new low relative to the previous price bar’s low, but then reverses and rallies to close above the previous bar’s close (bullish). And vice verse for a bearish reversal day. It typically signals a change in trend. Note, the larger the range of the reversal day, the better. Reversal candlestick: Typically bullish when the price opens low, then weakens, but rallies strongly into the close, to close near the day's high e.g. hammer, bullish engulfing pattern, piercing pattern. Vice versa for bearish signals e.g. shooting star, bearish engulfing pattern, dark cloud cover. Note, the larger the range of the reversal candle, the better. Risk-Reward ratio (good): A trade where the potential profit is at least 3x the potential loss. Selling short (or ‘shorting’): Expecting prices to drop, so selling first and buying-back later. Short position: A trade where one has sold short (as above) Shooting Star (candlestick) – A candle that suggests a minor (at least) reversal. The body of the candle is near the low, and the line has a long upper ‘tail’. Spot Price: the price of the underlying instrument itself i.e. not the futures price. Support: A level below the market where buying is greater than selling (i.e. demand). SSF's: Single Stock Futures. Stop-loss: point where you close the trade if it moves against you - to protect yourself. Time frames: (approximately) Short-term: 0-6 weeks; Medium-term: 2-5 months; Long-term: 1yr + (for purposes of TheMarket.co.za analysis report). For The Big Picture newsletter, long-term is defined as 2-5 years. Trailing stop-loss (or ’trailing a stop’): moving the stop in the direction of the market to lock-in profit e.g. a breaking of prior day’s high/low, or a percentage retracement of the current move (e.g. 50%), or the breaking of a moving average e.g. 10-day MA for the short-term, or 50-day MA for medium-term. Weekly close: the closing price on Friday afternoon.
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DISCLAIMER: The information contained in this analysis and/or report is not to be construed as advice in terms of the Financial Advisory and Intermediary Services Act of 2002, and is given for information purposes only. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services. Information for stock and index observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock/index/commodity/or currency observations, and opinions are entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. The information provided here is for interest and educational purposes only, and does not constitute advice. The editor and publisher of TheMarket.co.za newsletter will not be held responsible for losses incurred as a result the opinions expressed herein. All information herein is based on opinion; markets follow their own course. You must assess the risk of any trade and make your own independent decisions regarding any securities mentioned herein (or options thereon). We will from time to time have a position in the securities described herein. One should always use protective stops on all trading and investment positions. There is a risk of monetary loss in trading and/or investing on the financial markets. Charts created in Metastock. (Contact us for buying Metastock at the lowest rate in SA). Copyright, TheMarket.co.za. All rights reserved Tel: 011 440-7880 Fax: 086 510 9988
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