Market Update #1

JSE Top 40: 1 Year as at 13 Sep 2018

FTSE/JSE Top 40 Index technical analysis long term support candlestick hammer

The JSE Top 40 is trading near long term support in the region of 48,700, indicated by the horizontal line. Price seems to be hesitating at this level as indicated by the recent candlestick structure (circled). Price is also at the same level it was a year ago.

JSE Resources: 1 Year as at 13 Sep 2018

FTSE/JSE Resources Index technical analysis upward channel

The JSE Resources has been marching higher over the past year with price recently trading within a well defined short-term upward channel. It has recently gone through varying degrees of candlestick formations indicating a reversal to the upside. If price fails to move higher, it may indicate the consistent upward movement is running out of steam. This would then bring the low that occurred at the beginning of April into focus.

JSE Financials: 1 Year as at 13 Sep 2018

FTSE/JSE Financials index technical analysis descending triangle hammer candlestick

The JSE Financials has been trading within a descending triangle over the past year, with price essentially at the midpoint between resistance and support. Circled at the right is a classic hammer formation which may give indicate a very short term reversal to the upside. Further, price has been trading in a broadening wedge since the beginning of July, indicative of an imminent breakout.

JSE Industrials: 1 Year as at 13 Sep 2018

FTSE/JSE Industrials Index technical analysis candlestick hammer

The JSE Industrials price is trading lower than it was a year ago, but still above the last year’s which occurred at the beginning of April at a price of 68,360 which is the support level of interest. Recently a hammer formation occurred (circled) which was also a breakout day from the day before, indicating increased volatility. If volatility remains and price rejects the 68,360 level, it may be enough to send it upwards.

MSCI World Index: 1 Year as at 13 Sep 2018

MSCI World Index technical analysis upward channel bullish pullback

The MSCI World Index has been trading in an ascending channel over the past 6 months, with price recently making a slight bullish pullback from a bearish rejection of the top channel resistance. The previous swing low failed to meet bottom channel support before moving higher, and this latest pullback is consistent with that trajectory. Price isn’t close enough to the channel boundaries to consider a breakout as yet though, rather a continuation of play within the upward channel.

USD/ZAR: 1 Year as at 13 Sep 2018

USDZAR pair technical analysis cup and handle upward channel candlestick hammer

The Rand carved out a classic cup and handle pattern over the year. The cup occurs from the beginning of November last year all the way to the end of June this year. From there the smaller handle forms with its completion occurring around mid August. Like clockwork, a breakout upward then occurred with the high forming the top of a wide ascending channel the pair has been trading between since. The previous swing high didn’t have enough strength to continue the upward advance, but still managed to go higher than the initial breakout. Price is now at bottom channel support where we may see a breakdown and consolidation occur after a volatile few weeks.

Gold: 1 Year as at 13 Sep 2018

Gold Index technical analysis long term down trend short term bullish pullback

Gold has taken a beating since the end of April and follow a consistent downward trend line. A lot of this can be attributed to a stronger dollar as it makes the price of gold more expensive for everybody. The commodity has gone through a recent bullish pullback and is back near that downtrend. Should it fail to break higher, it may consolidate with the previous swing low becoming support. If it pushes higher, then the low at the end of last year comes into focus as resistance.

Oil: 1 Year as at 13 Sep 2018

Oil Index technical analysis ascending triangle at resistence

Oil has been trading within an ascending triangle over the last year with price currently testing the topside. Although a breakdown here is quite straightforward, with price anticipated to move downward to the support line. An upward breakout is far more opaque.

Mining: Production and Sales, July 2018

Mining production took a downturn year-on-year in July 2018 declining by 5,2%. Gold plunged 15% and iron ore by a staggering 17,4%, contributing -2,4% and -2,3% to the total respectively. The platinum group metals decreased by 6,2% and contributed -1,3% to the overall mining production decline. Interestingly enough, diamond production increased by 40,7% which helped arrest the general mining production slide.

Retail Trade Sales, July 2018

Retail trade sales increased by 1,3% year-on-year in July in real terms, with sales in household furniture, appliances and equipment increasing by 6,9%. Retail trade sales have been relatively inconsistent and weak of late. The most recent seasonally adjusted month-on-month July 1,3% increase, followed a month-on-month June decline of 1,1% and a month-on-month May increase of 1,3%. Weakness is evident in the seasonally adjusted retail trade sales for the three months ending July showing no growth from the previous three months.

Manufacturing: Production and Sales, July 2018

Manufacturing has shown some resilience with the latest data confirming this. Compared with July 2017, production increased by 2,9% in July 2018. The seasonally adjusted growth was also satisfactory, increasing 1,6% in July 2018 compared the the month before. This was better than the June month-on-month seasonally adjusted growth of 0,2% and the growth of 1,3% experienced in May. From a three month perspective, there was an increase of 1,9% seasonally adjusted growth at the end of July compared to the previous three months. Further, six of the ten manufacturing divisions experienced positive growth over the period.

Business Confidence

The South African Chamber of Commerce and Industry (Sacci) Business Confidence Index is based on business and market metrics, rather than a sentiment survey. The index, which measures business activity, dropped by 4.2 index points in August to 90.5, compared to 94.7 in July. Some of the biggest contributors to the lower reading were the weakened exchange rate, merchandise export volumes and higher inflation. Along with the implicit effects of the ubiquitous policy uncertainty.

Recession

Last Tuesday Stats SA released the GDP numbers for the second quarter, which saw a contraction of 2,6% on the back of a contraction in the first quarter of 0,7%, signaling a recession. Almost immediately Merrill Lynch cut South Africa’s projected 2018 growth from 1,6% to 0,9%, and the 2019 growth from 1,8% to 1,5%. Moody’s responded by halving their projected growth outlook to a range of 0,7% and 1% from 1,5%.

This negative development puts South Africa back in the cross hairs of the rating agencies. Merrill Lynch is optimistic that South Africa will continue to get a reprieve this year, while inferences from Moody’s seem less optimistic. Further, the government will have a tough time implementing their “stimulus plan” in the context of an already squeezed budget with lower tax collections. Hopefully the budget speech at the end of October, if not sooner, will provide some insight.

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