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Views Article – Sharenet Wealth

South Africa

Animal Spirits Are Returning, Fear Plummets

One of Sharenet’s busiest pages is their QuickShare pages. They get hit tens of thousands of times per day as the investing public inspects the shares that interest them. You can see in real-time where all the interest is going by looking at the QuickShare Heatmap on our front page as depicted below, where we see STEINHOFF and EOH are getting the most interest as of when I am penning this. From there you can just click on any block to go to that shares’ QuickShare page:

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Whilst a plot of total QuickShare views is indicative of market interest, I have found a better measure of bullish market sentiment to be the number of new QuickShare mailer signups. This is where someone requests from the QuickShare page to be emailed an update every night on the share’s performance.

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If you want the performance, news, and SENS of your favorite shares emailed to you every night, then I’m guessing you are really interested in what’s happening with that share. And on most (but not all) occasions, I’m guessing that’s because you’ve just made a share purchase or trade and are now keenly interested in what’s going on with your new purchase.

QuickShare new mailer requests were floundering at the depths of the JSE Nov/Dec lows but are now on a rapid climb again. The red line below shows that the number of shares people are adding to their tracking list every day is climbing significantly.

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Another way of gauging market interest or bullishness is to look at it’s opposite – market FEAR. We have many metrics in Analytics to gauge this, but the layman’s tool is the SA Volatility Index or SAVI. This is a forecast of Equity Market risk in South Africa. It is modelled on the VIX©, a popular measure for the volatility of the S&P 500. The SAVI Top 40 enables investors to gauge fear and market sentiment relating to the local Equity Market. In essence, the SAVI constructs a forward-looking index that provides a daily prediction of market volatility in three months’ time. It is calculated using implied volatilities obtained daily from specific SA Top 40 options. Since it is well documented that there exists a negative correlation between the underlying index level and its volatility, the SAVI can be thought of as a “fear” gauge.

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I’m guessing a lot more people in the retail segment are starting to get interested in the markets again and their trading participation is definitely on the up and up. However, this is not necessarily indicative of institutional behaviour though. The only thing I’m not liking is that this rally is very narrow and does not have wide participation. The advance/decline line is going down as the JSE goes up. As the JSE rises, more shares on a daily basis are going down than going up. Watch the Rand hedges – most likely this is where the money is going as the State-owned Enterprises disasters threaten to throw government finances over a fiscal cliff and investors fear for the Rands future. The trick with narrow participation rallies is to be in the right shares. Since more shares are going down than up, your odds of making a mistake are much higher than in a broad participation rally.

Have a look at the 12 highest offshore earners in the TOP40 as shown by our free Analytics JSE Market Scanner. Most of them bar ASPEN and SAPPI, are rising rapidly which supports the argument the Rand hedges are driving this rally.

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It is quite within the realms of feasibility that a few select large caps run us all the way up to past JSE highs. After all, that is how we got to the last high in this bull run and it’s how we got to the top in 2008, and the big top before that. Just because it’s an unhealthy rally doesn’t mean it’s not a rally! Just be sure if you are participating that you stick with the large caps that are dictating the index moves and close your eyes to those shares’ P/E’s which will balloon as the market crowds around them.

SEE LAST TWO ANALYTICS ARTICLES:

This Is What The JSE Leading Indicators Are Saying Now   |   Suddenly, The JSE Just Got Cheap Again

 

Dwaine
Dwaine van Vuuren
Retail-side Research
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 thousands 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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