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The bulls are back in town!
The bulls are back in town!
Published Date: 2019-10-14 | Source: INCE|Connect | Author: Petri Redelinghuys
The last few weeks have been rather tricky when it comes to reading overall direction of the market. We've been looking at two major indicators to help us understand what the what the sentiment in the market might be and thus far, neither of them have been able to give us really clear signals. So far though, the setups on Gold and the S&P500 (the two instruments we've been using as sentiment indicators) have been painting a confusing picture.
Gold have a false break lower last week, but still ended the week just slightly above the trigger line for the Head and Shoulders topping pattern. Once again this potentially bearish price move is very dependent on what happens in trade war related news. That said, if we look at the chart, the Head and Shoulders topping formation is still in play and if we see the gold price break below $1480, we are likely to see a move down towards the $1410 area.
The S&P500 seems to have found support and has made a double bottom pattern. This pattern could propel the S&P500 back towards that resistance level at 3030. We expect markets in general, both locally and internationally, to perform well in the coming week. Perhaps we see the S&P500 trade all the way up to that resistance level over the next week or two?
Last week we saw that the tertiary trend line break on the USD/ZAR created a move toward the R14.60 area. We expect this move to continue toward the support area between R14.50 and R14.60. Should the Rand be able to strengthen beyond that, we see the next support area between R13.80 and R14.05. This would fit well with a 'positive trade war' environment in which Gold comes down and the S&P500 rallies. It would also lead to strong share performances particularly in the Financial 15 index (banks and other financials).
Redefine is not one of the companies that we follow very closely on a fundamental level, although the chart does seem to be presenting a potential double bottom price pattern. Very technically, the Redefine share price needs to get and hold above R8.28 in order for the pattern to be validated, although more aggressive traders could enter the trade earlier in search of a higher risk-reward ratio. Should this pattern play out, it could reach as high as R9.00 a share in the coming weeks.
With all the bullishness around, it is no surprise to see so many bullish reversal patterns around. Bidvest shows and Inverse Head and Shoulders pattern that could see the share trade up to as high as R228.00 a share.
The very large Bull Flag price formation that we pointed out over the past few weeks is still in play and seems to be working very well. In a strong Rand environment with a strong global market backdrop, Capitec is likely to be the best performer amongst the banks.
Although the trend is still firmly down for Shoprite, the emergence of a Bull Flag price pattern does indicate that the price trend might change in the coming weeks. In order for the trend to change, we will need to see Shoprite reclaim the R160.00 level with some conviction. Until then, there is a bullish trade setup that could propel the share as high as R147.50 in the coming week or so.
*Please note that these trade ideas for part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.