NOTE: This is a copy of an Analytics market alert sent to clients last week. Charts and data referenced may be out-dated.
The SA TOP-40 fell over 20% peak-to-trough since the market-top posted 374 calendar days ago. That is right folks, it’s over a year since we started the correction and investors in the JSE index are down 20% since. Add inflation to the equation and we are down north of 25%. Not a pretty sight:
However, technical analysts would be right in pointing out that we have a solid looking double-bottom in place. Additionally, there is another positive development of late that makes this right edge of the double bottom more bullish than the first - it appears foreign buyers of our bonds are back, with just under ZAR5Bn in the last 5 days alone, and only 1 day in the last 10 sessions showing outflows:
If you mosey along to the Sharenet free Market Scanner and look for the worst fallers in the TOP-40 over this period, you can see that the carnage is a lot worse than 25% for many blue chip counters:
Looking at the above scanner output, the double-bottom and the alleged return of foreign bond buyers, I am inclined to start getting very tempted by the shape of the share price graphs of BTI, TBS, CFR, SOL, MND, TFG, SHP, and ABG. My personal favorite here is SHP.
But I am hesitant for some very good reasons.
We remain in the grips of a bear market when looking at the major leading indicators that warned us to get out of dodge in April 2015 - when the peak in the JLEAD was evident already. For the most part its relentless one-way traffic down:
There is a brave attempt by the percentage of JSE shares increasing earnings and dividends but the recent interest rate rise put that to bed.
I need to see some more of these leading indicators turn up before being coaxed wholesale out of the 80% cash positions I have been in for the last 3 years. I may start dipping my toes though.
All that is left to say is this - when the JLEAD turns up in a convincing manner the mother of bull-runs normally ensues. I doubt we see another decade-long bull though - I give us 1-2 years before the US falls into recession and we usually follow suit in short order, albeit with up to a 6-month delay. But I have my fair share of wrong calls. Hopefully the US expansion can last longer and drag us up with it.
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.