Are we currently in a bull or bear market? I hate to say this but it depends! Seriously, have a look at the chart below that depicts various aspects of our stock market since the bull market that started in March 2009, after the great financial crises:
The SA TOP40 has clearly broken out above its 3-year sideways channel to new all-time highs and looks dinkum like a new bull market. But strip out the five large-cap rand-hedges, namely NPN, CFR, BTI, BIL and SAB and a very different picture presents itself. In fact, the “real” JSE ex these big five actually peaked in April 2015 and so far, is printing lower highs from the trough of Jan 2016. So, ex the big 5, the JSE looks like it is still in a bear market.
The true state of things is however revealed by the advance-decline line. Each day we take how many shares went up and subtract how many shares went down and add the result to the previous days value. This gives equal weighting to every one of the 400 odd shares in the JSE no matter how large or small their market cap. It is a very powerful breadth metric to gauge health of any stock market in the world. This peaked in Oct 2013, one month before the SARB declared business cycle recession. And this is very clearly in a bear market.
You can read an excellent research piece on the AD-LINE and its use and effectiveness on the JSE over here.
While you are at it have a look at our latest research piece “SA decouples from rest of world economy“
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.