Shoprite Weekly; Exxaro - 31 March 2011

The resistance line over the RSI negative divergence puts pressure on the momentum in the price action. The divergence warned us of the correction/sideways action to come. The sideways action took us to the trendline, which was confirmed as support.

We expect resistance on the price to break along with the break of resistance over the RSI to signal the start of a new trend with strong momentum.

Exxaro Resources broke out of the consolidation to make a new all-time high. It is short-term overbought so a pullback to 156 is buyable.

Emerging Markets Index; Richemont - 29 March 2011

This index reached the target of the "head-and-shoulders" reversal pattern shown in the red circle here. We had a good (13%) correction from resistance. The price confirmed support last week and we see a buy signal from the Stochastic in the top window.

The next target is the all time high at 450. This implicates an increase of 33% for emerging markets.

The price moved sideways to meet the rising support line. There is horizontal support at 37.70. The MACD Histogram (green, top window) is above the zero line and came back from overbought levels. The stochastic in the upper window is giving a "buy signal in a bull market". The volume in the lower window is above the moving average, indicating buying pressure.

This is a bullish setup and investors can view is as a buying opportunity. Speculators should implement, and follow their money managent and stoploss principals

JSE General Financial; JSE Industrials; Imperial Holdings - 25 March 2011

This index has basically been trading sideways since August 2008. It came back to test support on the weekly moving average and the action of the last week confirmed this support. We view this setup as a low-risk buying opportunity for selected financials.

After a good (15%) correction, the index confirmed support on the weekly moving average. The weekly stochastic is giving a buy signal. Any small pullback next week is viewed as a buying opportunity in selected industrials.

Imperial is one of the stronger performers in the industrial sector. It came back (20%) to test and confirm support from buyers at 10.50. This is a confluance of support. We see horizontal, rising and fibonacci support near the weekly moving average. The weekly candle is a "bullish engulfing" candle that acts as confirmation of longer-term support as well as a buy signal.

Remgro; US$ Weekly - 17 March 2011

Remgro is trading at the rising support line around 104. This is also a strong Fib level (green line). The oscillators are grouping in the top window, indicating a timing signal for a turning point. Wait for a bullish reversal before buying. A tight stop will be a close below 103 and if support breaks, the target to the downside is 90.

Over the past 3 weeks we have witnessed a significant event on the currencies. We are all aware that currencies are always volatile and that movements are unpredictable most of the time. Sometimes however, we see a movement in price that has more significance than the normal week-to-week or even monthly movements.

Such an event signals the start of a new, longer term trend. The dollar index broke the support line -1-, that began in 2008. As such, it broke out of a 3 year consolidation during which the dollar strengthened and weakened in a triangle formation against a basket of currencies. The recent break of the trend line, signals the start of a new weakening trend for the Dollar.  

The graph shows that the index is consolidating below the trend line, and failed to break above what is now resistance at 77.
The longer the index fails to break above 77, the greater the odds of a major weakening in the Dollar. We can expect the Dollar to weaken to 70 on the index which implies a weakening of 9%.

That will only be the beginning of a much larger trend for a weakening Dollar as we see signs that there is a possibility for the dollar to weaken by 40% over the next decade.

This scenario will be driven by the yield differential between the basket of currencies. The negative real interest rate scenario in America will be the fundamental driver of this trend. When interest rates in America are below the rate of inflation, it means that money is for free and worth less against currencies with positive real interest rates.

The direction of the share market and commodity market depends on the value of the dollar. Think about the implication for inflation in South Africa and the rest of the world if the reserve currency (USDollar) is devalued by 40%. For starters, it implies that without any demand/supply shocks, the price of wheat, maize, oil etc. will increase by 40% in terms of the Dollar. Let's hope that the strengthening of the Rand will protect us against such a rise in the cost of basic necessities. We have seen the riots all over the world that stemmed from high food prices. High food prices and high unemployment is an explosive mixture in any country. It is the mandate of our Reserve bank to fight inflation. As long as that remains their mandate, the Rand should strengthen. The risk here is that fraud, overspending on social grants, poor service delivery and incompetence in government structures may weigh heavier on the Rand than the pro's of having one of the most competent Reserve banks in the world.