JSE General Retail - 16 February 2011

In the bottoom window we see the JSE-General Retail index bouncing off Fibonacci support on the weekly graph. The index confirms support this week. In the top wiindow we look at the ratio of the Retail index to the average of the market (JSE Alsi40). The rising trend of the black line indicates that the retail sector outperforms the Alsi40.

The ratio pulled back over the last few months to come and test the moving average. We expect retail shares to resume their outperformance from here on forward.

Murray & Roberts; Dow Jones - 02 February 2011

Things do not look good for Murries. The crucial, long term support level at 37.50 broke with a bang. The price is oversold now but any retracement to 37.50 will be met with lots of selling pressure. We don't have any Murries in our portfolios and we won't be interested in buying any before at least a 50% drop from current levels. The first major technical support level is around 15.

What does it say about a government if companies who get a tender to build infrastructure, do not get paid for work done? When will they get paid? The answer to this question will determine the value of the shares.

The Dow Jones is still above short term support. After the bearish reversal candle of last week we should be on edge and monitor stops closely. The stop is at 11700 and we believe that a break of short term support can lead to a selloff to around 11000. That implies a drop of 7%, which is ok for long-term investors to bite the bullet, but there is no way to have certainty that the decline will stop at 11000. That support may also break, so we feel that the most prudent action will be to take our stops when signalled by the market, and buy back the positions when support is confirmed.

That is the only way in which we can protect capital and exploit opportunities in an uncertain environment. This method has been proven time and again to add value over a buy-and-hold strategy. (Those in doubt may enjoy reading "Trend Following: by Michael Covel)

USD/ZAR - 01 February 2011

The Rand/USD went all the way to test major resistance at 7.20. The longer term trend is still one of a strengthening Rand, so we can expect the pair to target 6.50 over the next few months. This scenario is the dominant one for as long as 7.20 remains intact as resistance.

The weakening of the rand is ascribed to the accumulation of reserves by the SA Reserve bank, as well as foreign investors taking profit and balancing their portfolios. The fact that real interest rates in America will stay negative while in South Africa it will be positive should support rand strength for years to come. It simply means that money in SA will continue to be more expensive than money in America, meaning you could get more dollars for your rand .