Had you sold in May last year and gone away, according to the JSE Overall index plotting, you could have bought again in August at around a 10% discount. Had you sold again in February you’d have gained around 20%, but if you had delayed until now that gain would have reduced to 17%. We are almost back to May, but will this age-old stock market adage ‘sell in May and go away’ hold true this year?
It’s very easy to be right in retrospect as the above example shows, but much harder to peer into the future. Nevertheless, with the help of chart plottings, I’ll attempt a forecast.
The plotting chart of the JSE-Overall index’s moving average convergence/divergence (MACD) plotting has mostly been below it signal line since February. However the far right hand plotting shows it nudging upwards at its single line at just below its zero line. A clear upward break would give us a short-term buy signal. The index currently has a strong support at around 33 570 which has already been tested three times. Currently in a downward sloping standard error channel I suggest that, at worst, it will continue following this path for a while.
The market’s current wobble was caused by European problem raised its head again, this time with Spain at its centre. At one stage it was thought that Spanish bonds might reach 7%, but yesterday they tipped downward breaking through the 6% floor. Spain’s debt problems won’t go away any time soon, but a proud country it may pull itself together in a similar fashion to Ireland. On the positive side, recent German figures are encouraging. Consumer spending is again positive and the country has got over its recent hiccup in manufacturing. Several significant US companies are due to report and current expectations favour positive reports. As the JSE and others continue to dog the Dow, positive US news is good for all markets.
The oil market is more settled than of late, partially on earlier fears of a Chinese cutbacks. Brent Crude’s overbought/oversold chart shows it in oversold territory for the first time this year. While good for motorist, the nasty slip in the rand/dollar exchange rate may negate some of the oil price fall for local motorists.
It is only 13-days before Johannesburgers face e-tolling. With some threatening to use alternative routes, big business is calling for a delay in its implementation. Toll-charges will eat into company earnings and therefore dividends paid to shareholders. Whether in two weeks or later, many commuters will also use different routes causing chaos in some suburbs. As e-tolling fee payments are likely to spark civil disobedience at a time when government ranks are developing cracks my gut feel is that we may be in for changes of some kind.
(Click on the chart to see it more clearly)
To illustrate how the 2011 market followed the ‘sell in in May’ adage I have encased the plotting of the JSE Overall index in a series of standard error channels. The first downward-sloping channel, which began in May, was widely spaced, illustrating extreme volatility in the market. After some bumps and dips, in late July the MACD crashed through its signal line plummeting past its zero level. Then shrieking ‘oversold’ the index plotting plunged sharply through the lower edge of its standard error channel. Its oversold plotting fell to - 9.77. The upward break of the MACD through its signal line took place on 26 August when it was - 4,8 oversold. The upward standard error channel continued until February 6, reaching +7,66 overbought. While less so, that channel was still fairly wide, showing that some volatility continued. A sell signal came on February 9 when the MACD pushed downward though is signal line.