Positive signals for the rand and the stock market

It’s worth another look at a chart that I drew earlier this month which then indicated that the market would dip and the rand gain strength. The rand is still gaining strength, but the market is improving and likely to continue doing so.

The much needed strength in the rand is continuing (fewer rands are needed to buy a dollar) and shown by the plotting heading downwards. To make sure that this encouraging movement is likely to continue, I have overlaid a standard error channel, the green upward sloping lines. The center line is the equilibrium (the level to which the plotting is expected to return) and the two outside lines boundaries, which indicate that the subject (this time the JSE-Overall index), have moved too far in either direction.

A break above the upper line shows that the subject has moved too high to maintain this level, and a break below the lower line, that the subject has moved too low to maintain this level.

A break above the upper line happened in late September, early October – it took too many rands to buy one dollar. The plotting has since fallen to below the center equilibrium showing that it is perhaps moving down a little too fast, but is still far away from the lower error line. This tells me that I can expect this downward move to continue. If this downward move continues for a longer period, the slope will flatten, and begin to tip in the opposite direction. This would be wonderful for the country, but I am not placing any bets on it happening yet.

Over the second plotting (blue candlesticks), I added a moving average convergence/divergence indicator (MACD) and its zero line, also in blue, but have indicated its signal line in red. The MACD is an excellent way of showing a shares current position, overbought or oversold, and indicate buy and sell signals. Anything above the blue vertical line is zero is positive, and anything below negative. The exception is when, the plotting is far above, showing that it is well overbought and likely to turn down, or far below, showing that it is well oversold and likely to turn up. This turning upwards has happened to the extent that it has broken through the red signal line giving a buy signal.

My reading of the present situation is that the rand will continue to gain value against the dollar and the share market will continued upwards. As our shares are quoted in rands, this means that their intrinsic value will increase.

Jean Temkin

A timely switch for more Sasol

Not all of our share picks have proved profitable. Like most investors our portfolio sometimes contains some duds. Therefore, when we see a dud spurt upwards, rather than wait for it to get back to our buying price, we get rid of it and reinvest in one of our dependable stocks. Today that happened.

Once we fancied Nuworld as a spec, but as we’d invested little in it, we let it continue cluttering our portfolio. Then seeing Nuworld shoot up into an overbought position just as Sasol, started to perk up having fallen out of bed into an oversold position, we did the swap. This position, seeing a share we don’t want reaching a high at the same time as one we do want touching a low, doesn’t happen often. Fortunately, as followers of technical analysis we are in good position to spot such happenings.

There is a lot less said and written about technical analysis these days than when Ben and I wrote our columns for Business Day. Then it was widely recognized that timing is the basis of profitable investment. You can buy the bluest blue chip, but unless you buy it at the right time, you may as well put your money on a lame Derby runner. Likewise, you can buy rubbish that brings in stacks of profit as long as you buy it its bottom, and sell it at its top. The timing of the sale is just as important as the timing of the purchase but can only be achieved using technical analysis.

Nevertheless you have to look at the fundamentals. Why has a share fallen to a low, making it an excellent buying opportunity, and why has a share shot into an overbought position which signals a probable fall?

A look at the chart tells us exactly why Sasol’s price has fallen; an oil price drop bringing down the price of petrol. This may of course continue, but in the case of Sasol, demand for its long list of Oil and Synfuel products as well as Polymers, continue whatever the oil price.

Sasol has a problem. As a South African company it sells most of its products in the ever-declining rand. However with its gas-to-liquid facility at Lake Charles, Louisiana, at a cost estimated initially at $20bn, this may be changing. Critics of the company point out that this project seems to be taking precedence over local expansion. They claim that Sasol’s capital expenditure in South Africa is essentially going towards maintenance rather than growth.

Do we shareholders Sasol care? Nah!

Jean Temkin

High volatility suggests big,big changes

The stock market, which has cushioned share market investors from the ravages of a falling rand, has turned against us, but there is a gleam of hope on the horizon.

For around three years, up until September 1, we stock market investors have contented ourselves with a swings and round-about scenario, rand against the share market. As the rand has lost ground, the stock market has risen; one compensating for the other. But since Spring burst forth, while the rand lost almost 4%, the JSE-Overall dropped almost 6%, reducing both the value of shares, and the currency in which they are quoted.

My search for encouraging charting signals with regard to the stock market yielded little but as world markets are all currently heading downwards and our own, most oversold for three years, The JSE Overall index will only alter direction when the rest do. The depressing news comes with the overlay of a Bollinger Band, set at a tight deviation of “1”. The currently extreme width of the band shows high volatility. From September 22 volatility took the plotting downwards outside the band indicating that the downward move is likely to continue.

Rather than the market, it is the rand that has me glued to my computer screen. While the rand’s Bollinger Band plotting is also wide, it is less volatile. The improvement in value seen since October 3, is likely to continue taking the plotting down to the lower edge of the band. But the thing that has me fired with optimism is the point-and-figure chart that shows last week’s broken triple bottom at $1/R11,21. If forecast theories from such a move play out to their full, this will take the rand to below $1/R9. Looking at the fundamentals, the only reason I can imagine would prompt this is the ousting of our currency’s worst enemy, Jacob Zuma.

Just imagine what this currency improvement would do for the country as a whole. There has been a 20% drop in the oil price since its June high, but with the rand’v value falling by 5,4% during this period. petrol and diesel prices have enjoyed limited reduction. But, if the rand significantly improves against the dollar, every item that travels by road, and every bit of agricultural product, grown on our farms, can fall in price. The richest BMW driver and the poorest benefit drawer will have more money to spend.

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