I’ve seen this movie many times before. A nice 6-10% correction leading into December, then everyone going on holidays, gatvol of the markets, many trading positions closed out. With the bulk of participants at their favourite holiday destinations, licking their wounds from unkind market conditions, the stealth rally begins. No big up-candles to catch any attention - just a low volume slow melt-up. The kind that looks like it’s going nowhere but 5 days later you wonder how the hell you missed it.
December is normally a good month for JSE shares. I say normally as there are enough bad Decembers to not make this a sure-fire bet. But Decembers coming off steep corrections are a very different story. The corrections escalate the odds of the Xmas/New year rally right through to around 5th January. In fact, this trend has been strong since 2013 as shown below. You can see we are right on track with the playbook so far:
On a "very rough" average we bottom on the 31st trading day after the first trading day on November, which for this year is Wednesday 13th December. So, the bottom is 2 days late this year but nothing out of the ordinary given the rough averages we are using. Also, on a "very rough" average we top-out on the 40th trading day since the first trading day in November, which for this year will be 28-29th December. Coincidentally these are the two days with the least market participants (very low volumes), with everyone getting ready for the New Year’s party.
My personal gut is we trough intraday Monday 18th in a classic "Turnaround Tuesday". The legend behind this phenomenon goes like this - when the markets sell off into the Friday, and we are in a "reasonably large" correction, investors mull things over the weekend and decide they are getting out on Monday. Monday selling pressure peaks when the last weak hands are out the market and voila! - with no more sellers there is only one way - up! With the peak-to-trough fall of the J200:TOP40 at 8.54%, and a nice red Friday candle, we are primed for a Turnaround Tuesday.
I urge Sharenet Analytics clients to look at their TROUGH charts tonight or over the weekend. You will see that at least 5 other classic signs of a significant bottom are presenting themselves. This is the time you go into your JSW and click those "Guru" stocks and "Fallen Angels" stock finder buttons because if the J200 is down 8% you will find quality shares down 2-3 times that! Forgotten this time proven strategy? No problem, just go view the publicly accessible training videos here.
Have a Great Weekend!
TUES 19th UPDATE ALERT: As predicted, we troughed on Monday and a classic turnaround Tuesday rally probably marked the trough of this 8.5% correction and in all likelihood, we embark on a Stealth XMAS rally of 3-6% going into the 29th December.
Dwaine van Vuuren
RecessionAlert, Sharenet Analytics
Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.