EURO / USD; EURO / ZAR; USD / ZAR - 30 December 2010

The US Dollar could not strengthen beyond 1.31 against the Euro so now we see evidence that a new wave of weakening in the Dollar is about to start.

We expect the Dollar to weaken more, with a target of 1.42 to the Euro in the next 60 days. If this view does materialise, it will be bullish for shares.

While the Dollar is expected to weaken against the Euro, the Rand on the other hand is trending stronger against the Euro. This implies substantial Rand strength against the Dollar of course.

After breaking out of the canal between line 1 and 2, the minimum target is 8.50 for Euro/Rand. However, a correction to 9.10 over the next few weeks is a strong possibility and is part of a longer term strengthening trend.

As we mentioned in earlier posts, the Rand is targeting 6.50 against the Dollar. This target is almost being realised as the Rand is currently trading stronger than 6.60. It is difficult to put a time-frame to movements but we were not too far out with our target being reached by "late December or early January". We can expect substantial resistance for the Rand at 6.50. That means that the Rand could weaken (temporarily) once it tests 6.50.

While we are not in the business of predicting the future, in order to add value to our clients' accounts, we have to identify the current trend and draw conclusions from that. We are of the view that the Rand may strengthen for years to come and my personal view is that we might even see the Rand at 5.50 to the Dollar before 2012 is out. This implies that South Africa will be a favourite destination for international investors as the currency appreciation alone offers great returns.  

USD Index; Wheat Composite CBOT Cont.; SAFEX Wheat Dec

The current action on the dollar index acts as confirmation that the 81 level is strong resistance. From here we can expect the dollar to weaken to 77. This will be bullish for shares.

The CBOT wheat price is showing very positive signs. We had the break above the resistance, at line -1-, at the beginning of December. Now the price came back to test, and confirm that level at 7.50 as support (at the red arrow). That means that the buyers are seeing value at the level where the sellers were in control since August.

The next level where we can expect the sellers to be in control again is the 9.50 level at line -2-.

We see the current setup as a buying opportunity. That implies that local farmers who sold their crops, can now buy it back by implementing an option strategy. Farmers who have not sold their crops, can wait for the 9.50 level on CBOT for the next opportunity to sell.

The local wheat price broke resistance at 2800 to complete the consolidation pattern between 2560 and 2800 that started in August. The next target is 3100. 

USD/ZAR; AUD/USD; JSE Allshare Index - 30 November 2010

It looks as if the Rand may retrace to 7.30 before this correction comes to an end. This is a correction in the longer term strengthening trend of the Rand, and it coincides with the correction in share markets.

The setup on the Aussie dollar confirms the setup on the rand. The Aussie Dollar completed the "head and shoulders reversal pattern" to target the support level at 0.935. We expect the Aussie Dollar to find support there and resume the strengthening trend. The 0.935 level on the Aussie translates to 7.28 on the Rand/USD.

We were a bit impatient in our last blog. It looks as if the All Share is on it's way to 29 750 after all! This correction is a buying opportunity for investors with cash. This is the first decent correction since August and should be viewed as a positive occurrence, as a stable bull market needs to correct regularly.

US Dollar Index - 25 November 2010

It looks as if the Dollar index could go to 81 before the next leg of Dollar weakness commences. The current Dollar strength is only a temporary correction in the longer term weakening trend.

The significance of this, is that a weaker Dollar translates into rising share prices.

JSE FTSE All Share Index - 22 November 2010

This index has been in a sideways consolidation for the last 12 trading days. We discussed the possibility of a correction or a sideways consolidation in a previous post and the fact that the market moves sideways and does not come down, is a sign of underlying strength.

Over the past week, we bought shares in companies where the buyers are in control of price movements. The industrial companies are leading the market to the upside while the mining sector is lagging. We'll keep our focus on industrial companies until such time as the situation changes.

Barloworld - 18 November 2010

The CEO of Barloworld is upbeat about the growth prospects going forward. The price-action confirms that the market participants believe him.

The price broke resistance given by sellers at line 1 to signal the end of the sideways consolidation that lasted more than a year, and the start of a new rising trend. The fact that there is such an increase in the demand for shares, is a positive signal for us.

USD / ZAR - 12 November 2010

The current weakening of the rand is the result of the temporary strength of the dollar. This coincides with the anticipated correction on the international share market. Despite the current short term weakness, the longer term trend for the rand is stronger with a possible target of 6.50 by late December.

We expect the rand to weaken to between 7.25 and 7.40 over the next 2 weeks. After a test of those levels, we expect the rand to resume the strengthening trend.

JSE FTSE All Share Index - 10 November 2010

The divergence between momentum and price, as indicated by line 1 in the top window, is an early warning signal of a correction to come. This can be in the form of a sideways consolidation for a week or so, or a retracement to line 2 at  29 700.

We will wait for this to play out before we do more buying. We view this anticipated correction as a further buying opportunity in an ongoing bull market.

Investec PLC - 08 November 2010

Investec PLC offers a low-risk opportunity in our view. The share price has been in a 16 month sideways consolidation. From past experience we know that a break from such a consolidation leads to a very profitable move, in this case we expect it to be to the upside. When the share price breaks resistance at R60, it will open the door for the first target of R110. If the price breaks support at R50, it will be bearish and we will not be interested in buying. We will accumulate once all our criteria are met.

Take note that we are not giving trading recommendations. If you are trading your own portfolio, you must do your own research. We implement strict measures to manage the risk inherent in trading and investing. This blog is aimed at clients from whom we have a mandate to manage their accounts.

Wheat Dec10 and JSE Top40 - 04 November 2010

The wheat price is bullish as it is trading above the moving average. The price finds support at a rising angle as depicted by line 2. The sellers are in control at line 1. This setup implies that wheat is in a sideways consolidation in a longer term rising trend.

The current setup is still positive for farmers with wheat to sell. I expect to see the price test 2800 in the next 2 weeks. If the price manages to break below 2630,  farmers should consider selling their stock.

This index of the 40 largest companies on the JSE broke out of the year-long sideways consolidation (within the red circle) to resume the rising trend. We expect to see the index rise to the 2008 high above 31 000 points eventually.

Now that we are out of the long and frustrating sideways market, we follow our tried and tested system of buying the strongest shares in the strongest indices. This method not only offers better returns on capital but also better returns on the risk taken, as the stronger momentum shares tend to make smaller corrections when the overall market goes through a correction. In essence, this is the way we add value to your portfolio.

S&P500 in terms of Gold and USD - 03 November 2010

Here you are looking at the reason why saving via money-market funds will make you poor. This graph clearly shows what very few economists, and certainly no polititians in power, are willing to tell us - that most currencies are being debased at an increasing rate. The reader who is serious about protecting his wealth should understand the game that is being played by developed nations regarding the use of currency devaluation in an atempt to save their financial systems.

America was on the gold standard during the Great Depression.(That means that every dollar in circulation actually served as a "cheque" for gold held by the Federal Reserve). Between 1929 to 1932 the Dow Jones lost 89% of it's value. To compare the severity of the current situation we have to do so in terms of the same "currency". If we calculate the value of the S&P500 in this case, in terms of the currency that was used during the Great Depression (gold standard) and not in terms of the current dollar (Fiat currency) the picture becomes clear. Since the top of the bull market in 2000 to the low in 2009 the S$P500 lost 85% of it's value. In terms of the current dollar it only lost 53% of it's value over that time. Currently the index is only 20% below the all time high in terms of the current dollar. In terms of the "gold standard dollar" it is 84% below the high. The difference between the two is the result of the biggest con-game ever played and was actually already won by Robert Mugabe who managed to get away with printing dollars untill inflation reached millions of percentage points.

Don't be fooled. Buy assets that protect you from inflation. We believe a well managed portfolio of listed companies offers the best opportunity to benefit from the actions of the Federal Reserve in America and Reserve Banks in the developed world. Cash in the bank and money-market funds will be the biggest casualty over the longer term.

USD / ZAR - 02 November 2010

Regular readers know that we are long term bullish on the rand. Line 1 depicts the strengthening trend. We expect to see the currency trade at R6.50 in December.

A stronger rand will benefit certain sectors over others so a diversified portfolio will not perform as good as a portfolio that is concentrated in the right sectors. We are geared for a stroger rand over the longer term.