The stock market never fails to amaze me. We South Africans along with the population of many other countries have plenty to moan about yet our stock market reached yet another new high on Friday. Certainly most markets kicked upwards at the end of last week, but as far as I can see, only the JSE reached record high.
The high was reached despite all the things that influence our economy, joblessness, inflation, the value of our currency and the like, being as bad as, or even worse than ever. To my mind the only plus-point we have is that President Zuma’s days at the top appear to be numbered. Many of us will give a loud whoopee when that does happen, but it won’t end the corruption with which our country is riddled. However, as morals tend to filter down from the top, perhaps with a proper role model at the top, the lack of ethics that has become the norm, will dampen down.
What amazes me is how well industrial companies are doing. The JSE industrial index has risen 22% this year, the JSE-ind25 36% and the *Satrix INDI 34% compared with a 15% rise in the JSE Overall index.
Meanwhile I would imagine that it is amongst industrials as a whole, the economically the worst hit companies are to be found. Until the rand started to weaken, many overseas markets were closed to our exporters because their goods were uncompetitively priced. Now that the rand has weakened, and their prices acceptable, erstwhile but newly flat pocketed overseas buyers, have disappeared. At home, swingeing petrol and electric prices have reduced men-in-the-street disposable incomes to a fraction of what they used to be.
Many industrial companies lack skilled labour and, with our education system in chaos, many skilled youngsters are people of the past. Industrial companies can borrow at attractive rates of interest, but lending institutions are tight-fisted particularly in the small business sector where the most jobs can be created. Then there is millstone-like unfavourable labour legislation that impedes progress. Despite legislation in their favour, employees, lucky enough to have jobs, strike.
Nevertheless, our industrial index looks fine, so fine that presently it may be overbought. For the chart I have used the Satrix INDI which, poking through the upper edge of the blue standard error channel, shows it to be overbought. However, we have a conflict of technical indicators, as the MACD plotting (red) has broken upward though its green signal line giving a buy signal.
The centre line of the standard deviation channel is the equilibrium, the level to which the plotting constantly returns. When the plotting rises above the outer edge of the channel, it is overbought and when it falls below the lower edge, it is oversold. You can see that in June and July it poked though the lower edge – it was oversold which made it an excellent time to buy. It is now poking through the upper edge, which means it is likely to ease back.
The MACD is an excellent buying or selling indicator. A break upward through the signal line is a buying opportunity and down through the signal line a selling opportunity. However, many of these signals are extremely short term, and if you obeyed every one, the only person to become rich would be your broker. The major signals come high in the upper half or the chart or low in the bottom half. Major sell signals came in March and September and buy signals in June and October.
Therefore, in the current conflict situation, I would tend to believe the standard error channel as positioned two-thirds up the chart, and having already received two buy signals in its latest up-move, the MACD may be tiring. I could of course be wrong, and as the owner of several industrial shares, hope that I am.
Postscript: I deliberately chose a Satrix plotting for the chart as I believe this is an ETF (exchange traded fund) that gives ordinary investors an investment opportunity to those not schooled in the workings of the stock market. Also, like unit trusts, they allow rand-cost-averaging. By investing a fixed amount every month, when the index falls, your investment buys more units and when it rises, you buy fewer.
Satrix INDI accurately replicates the FTSE/JSE INDI 25 index, by holding the shares in this index in exactly the weighted and number they constitute the index. Dividends paid by the underlying companies, less expenses incurred by managing the portfolio, are paid out to Satrix INDI shareholders on a quarterly basis.
Further information on all Satrix funds contact its call centre on 086 100 0670.