Woe betide the rand

Collectively against major currencies, the rand is in a far worse state than it was in the 2002 fallout, and the 2008 meltdown. I have reached this conclusion by comparing it to the dollar, pound and euro, but it could be even worse against some other currencies.

The chart plots the rand’s exchange rate against two major currencies over a 17-year period with the euro making a third when it came into being. Europe is historically our major trading partner, with our agricultural produce high on the list of our exports but also featuring high on our list of finished goods that are imported. So as not to confuse chart readings, I have left out the linear regression slopes to trace the extent of the rand’s losses. Alarming is the significant 2,9 in the Euro, compared with the 1,3 slope against the pound and 0,58 against the US dollar.

In 2002, the rand fell to ₤1/R19,86, which is 14% lower than its current value. In 2008 it fell to ₤1/R18.9 or 11% lower that today. The slight strengthening over the past day or two, taking the point-and-figure plotting downwards from the most recent support level of ₤1/R17, is a relief. But this support has been twice tested and a third fall taking it below that support, would give us a forward count to around ₤1/R21.

Since the 2002 meltdown, the exchange rate against the then fledgling currency, the Euro, was €1/R12.22 since which the rand has lost 30%. In 2008, when share markets crashed, regarded as a high-risk currency, the rand fell to €1/R15,2, which is only 7% lower than the current rate. Here the point-and-figure chart shows the rand breaking through a spread triple-top and so we already have a forward count to €1/R17.

In 2002 the rand fell to $1/R13.9, 15% lower than today and in 2008 to $1/R11,8 only some 3% lower than its current rate. The support level for the rand/dollar exchange is just above $1/R10,42 which again has been reach twice before. Here, if another fall takes it further down we’ll have a count to $1/R12.8.

Our major blow in relation to the dollar/rand exchange rate is that while the oil we import is not produced in the US, the oil is priced in US dollars. Therefore, local exporters may read my projections with glee as, if they realize, their order books will fatten further by selling at highly competitive prices. By contrast importers will cry like babies. The most wildly damaging import is oil which is now 24% lower that its price of $146 a barrel in July 2008, but then the exchange rate was much less scary at $1/R7,73.

Jean Temkin


Market Jitters

As I emerge from the non-writing corner in which I have been hiding for the past few months, unease over the present state of the market compels me to issue a warning. Apart from the generally unpopular shenanigans of our government, he real threat of widespread civil disobedience over E-tolling urged me to me studying my charts. I number amongst those who hope that E-tolling will result in the downfall of the present government, in a similar way as the poll tax led to Maggie Thatcher’s departure. However, such an upset may adversely upset the blissful state of the market that we have enjoyed for the past few months.

This year’s high was reached in early November and charts lead me to expect a downward drift or even a plunge. The current support level of the JSE Overall index is around a twice-tested 44 000. If on the third testing it does not hold, we will receive an alarming down-count on its point-and-figure chart (not shown) to a hair-raising level of around 33 880.

You can see from the chart that such a fall would take the market below this year’s two lows reached in April and June. While I am not an avid believer in head and shoulders formations, assuming the April to June rise and fall is the left shoulder and the November high the head, the formation is two-thirds of its way through. To complete the formation we might expect a fall to around 37 800, which is the level of the neck, a rise and then a further drop. This is the pessimistic reading. Less so is to regard the August to September rise and fall as the left shoulder and the November high as the head. That would bring the neckline to a more acceptable level of around 42 700. I have drawn the two possible necklines in green.

Typically head and shoulders formations take time to complete, and so taking a shorter-term look at things, I have added a moving average convergence-divergence (MACD) plotting in red. MACD’s are an excellent method of timing the buying and selling of shares, indices and the rest. Buy signals come when the solid MACD crosses upwards through the dotted signal line, and vice-versa for sell signals. The latest sell single came on November 11 and the lines have since swiftly headed downwards. I have plotted the MACD’s dashed 0 line to show that both the solid and dotted lines have now dropped below the zero level into negative territory.

Other charts of the JSE-Overall index are also discouraging. On its price chart, the short-term moving average has just fallen through its medium-term moving average, and if it continues falling, a new bear trend will be indicated. Its stochastic indicator is fast approaching 40; its relative strength indicators at below 45; and it is fast approaching -2 on its overbought/oversold indicator.

Not for one moment am I suggesting that you liquidate your portfolio, but if you are heading to the beach for Christmas, I suggest you study your portfolio and consider liquidating those shorter-term holdings that you bought for speculation.

Jean Temkin





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Ben & Jean share their thoughts on the Investment World & its opportunites, plus anything else that they think will be interesting