The J200 Top-40 is now down 15.6% from its all-time-high printed on 21 November 2017. The below chart shows all 18 occurrences since May 2004 when the J200 RSI (12) was below 30 and the 20-day rate of change was below -6%. While all of these occasions turned out to be great BUY signals over time, 14 of them turned out to be brilliant signals that were NOT accompanied by lower lows within the following 3 months (in other words they were absolute bottoms.)
(Click image to enlarge) Against this hugely oversold technical backdrop we still have positive macro tailwinds. The yield curve is positive, interest rates are dropping, inflation is dropping, the Rand is still showing strength over the medium term, JSE earnings yields are higher than inflation, annual foreign purchases of SA stocks and bonds are now above water and believe it or not the SA business cycle indicator is showing continued growth.
Here is a list of the TOP-100 shares by market-capitalization that are in technical bear markets (down more than 20%)
There are no doubt some serious bargains among this list, but many shares are down for good reasons (Steinhoff). If the TOP40 makes a hard bounce off oversold levels, many of these counters will magnify the move of the index which could provide some good trading opportunities.
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.
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