Dow Jones Industrial Average Index - 31 January 2011

The Dow Jones gave us a warning signal last week. The black candle in the red circle shows selling pressure at previous resistance. This is a warning that we may see more selling pressure coming into the market as participants take profits at first, and protect capital as the decline progresses. We are monitoring the situation closely.

JSE Banking Index; JSE Financial Index; Capitec - 27 January 2011

In a previous post we said, "It is not yet time to buy banks." The action of the past 2 weeks confirm this view. The banking index did confirm overhead resistance last week and is pulling back to look for support.

If horizontal support at 38 500 breaks, the index may fall all the way to Fibonacci support at 34 500. This implies a possible 15% decline from current levels. We won't be buying banks just yet.

The JSE Financial Index (which includes the banking index) is giving clear warning signs to investors. Within the black ellipse we see the index trading in a "rising wedge" pattern. This normally is a reliable reversal pattern.

With this in mind, we won't be buying financial shares and will be keeping a close eye on the decision making levels of current holdings. If this index breaks to the downside of the pattern, we expect a 15% drop to 18 500.

Capitec must have been the best performing share on the JSE over the last year. Currently we are witnessing a rare pullback. A potential target for such a correction could be horizontal support at 140. The "risk" involved in buying a share, can be summerized as the difference between the current share price and it's 89-week moving average price. Here we see that moving average at 100. We see Fibonacci support at 120, this is the 38% retracement of the whole upwards leg since April 2009.

One thing is certain, the weekly support level has broken, to signal the end of the bull run. Now we will have to wait and see if the correction does materialize or whether we will only see a sideways consolidation. It is too early to buy and not to late to take profit.

S&P500; JSE Share TOP40 - 24 January 2011

Despite the signs that a correction could start any day now, the index is still holding above support. A break below 1275 will signal the start of a correction of between 10 to 15%.

This local index confirmed support on Friday during the afternoon, after trading negative during the morning. The index is still trading within the "rising wedge" pattern.  In the majority of cases this is a reversal pattern, so traders will have to monitor their stops closely. If support breaks, we might see a correction of about 15% in this index.

JSE Food & Drug Retailers - 18 January 2011

The JSE Food & Drug Retailers sector pulled back over the last few months. The index is now back at long-term support while the oscillator is giving a buy signal in oversold territory. The price action of the last week confirms this rising support trend line. 

This is a typical buying opportunity in a bull market.

JSE Overall Index - 17 January 2011

It is time to sit up straight and take notice of this situation on the JSE Overall Index. The index is right at the level where we saw the reversal during 2008 and the market is currently overbought on the monthly, weekly and daily timeframes so we could be in for a major correction here. We will have to see what the coming week holds in store. It could be that we get some follow through after the strong action of last week and then, later in the week, get the reversal to confirm resistance.

Explanation:

Support: When buyers are willing to pay a certain price, and the sellers are not willing to sell below that price, we call it a support level; ie. buyers supporting the market. When we see rising support levels it indicates a bull market.

Resistance: In this case it has nothing to do with the French fighters during the 2nd World War. The price level at which sellers are in control of the market and the level at which the buyers are not willing to pay more, is known as resistance. When we see consecutive lower resistance levels it indicates a bear market.

By studying support and resistance the analyst can determine the current trend in a certain timeframe. The aim is to own shares in a bull market and to be in cash or protect capital during a bear market. By doing so the investor can add value to his overall, long-term returns, while being able to sleep at night.

JSE Banks Index - 13 January 2011

We have to keep an eye on this situation on the JSE Bank Index. What we see here is the index from the start of the crash in 2007. Note how the index has found resistance, at the previous high, since April 2010. The index has been trading in a "consolidation pattern", that takes the form of a "flat top triangle" for months. Flat top triangles usually break out to the upside and it is a bullish pattern.

If the banking index can break above this long term resistance it implies that the circuimstances for banks have changed for the better and that the negative effects of the recession is behind us. The banks are working through their bad debts and the cost cutting of the past year will improve profitability. South African banks withstood the financial turmoil of recent years and will have room to grow, while their international competition is still flooded with worthless assets.

We will have to wait and see if the index can break resistance before we buy the stronger banks. At the moment the index is overbought on the weekly scale. That means that resisistance might last and the index might pull back to support. It is not yet time to be buying.

USD / ZAR; ASX All Ords; Share Holder Weighted Top40 Index - 12 January 2011

The current action on the USD/ZAR confirms the strengthening trend of the Rand. The long term trend is intact. It will take a break above 6.90 to change this view.

The ASX confirmed support today. We will have to wait and see if this index can break above previous resistance at 4880. The ASX usually gives an indication of what to expect locally.

Here we are seeing warning signs of a larger correction to come. We now have a "compound divergence" on the RSI, while the index is trading in a possible "rising wedge" pattern. This combination is a reliable warning that a correction is imminent.

Shorter term traders should consider pulling their stops to under the last support level. We expect it to be a correction in a longer term bull market, so it will be a buying opportunity.

AUS$ / USD; CBOT Wheat; SAFEX Wheat - 06 January 2011

The Dollar strength of the last few days is temporary. Here we see the AUS$ pull back to test the longer term rising trend line. The strengthening trend for the AUS$ and the Rand is still intact.

The Rand might retrace to 6.80 against the USD before targeting 6.50 again.

After breaking resistance at 750 and consolidating above that level, the price is set for the next resistance level at 950.

The local wheat price is busy completing a huge "bottom formation" that started in November 2008. The price must break above the current Fibonacci resistance at 2900 (green line) to get going with an eventual target of 3800. This target may only be reached towards the end of 2011.

Our feeling at the moment is that the opportunity in the wheat market should be well exploited this year for the adverse situation in the Ukrain and Queensland; and the wheather problems in the USA won't last forever. We might have to fix the price for 2012 forward towards the end of 2011. We will keep you posted.

Remember, even the best analysis is never a certainty. Always limit your exposure and protect your capital.

Clicks - 04 January 2011

During the first week of November, the negative divergence between ossilator and price warned us of the coming correction. We believe this correction is nearing it's end as the price is at longterm rising support.

A confirmation of support and a subsequent break of resistance at 44 will serve as a buy signal for us.