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JSE break-out after more than three years of trading sideways?

by , 21 September 2017
JSE break-out after more than three years of trading sideways?
The JSE's rally from late June accounts for all the growth we've seen this year.

The bullish tone is threatening a break above the trading range which has confined the market for more than three years.

As in common at this stage, small caps and midcaps have lagged significantly and we expect them to play catch up.

Mid-caps to consider include: MicroMega, Santova, AdvTech and AECI.

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In the week ahead: 
  • The Secret Ballot on the motion of No Confidence in President Zuma on Tuesday
  • SACCI Business Confidence, Mining and Manufacturing Production
  • Results expected: Merafe, Mpact, Glencore, City Lodge and Old Mutual

Last week’s movers and shakers…
Best Performers: Sibanye 12.9%, Implats 11%, Torre 8.6%, Old Mutual 7.6%, Northam, Richemont and Kumba all up 7.3%.
Worst Performers: AngloGold -6.7%, Transhex and Hulamin -5.1%, Grindrod -4.9% and MicroMega -3%.
Secret Ballot! As we speculated last week, the Secret Ballot will go ahead. Resources and Richemont pushed the market higher last week.
Other Economic data releases of interest… 
  • Tuesday: Quiet – no major releases
  • Wednesday: CPI and PPI (China), Crude Oil Inventories (USA), Rates Statement (NZ)
  • Thursday: Manufacturing Production (UK), PPI and Unemployment Claims (USA)
  • Friday: CPI and FOMC member Kashkari Speaks (USA)
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One to Buy
AECI – Explosive Growth Potential
AECI achieved 32% increase in HEPS for the half year to 30 June, this is after it experienced a 13.67% decline in foreign and export revenue. 34% of total revenue was generated outside of SA.
The end of the draught will provide welcomed relief for the company and an improved financial performance.
Trading on a PE of 11.8 and dividend yield of 4.1%, AECI is a good addition to a diversified portfolio. Buy below R105.00
Two to Sell
Standard Bank –unsustainable rally!
Standard Bank share price has had a sharp rally since, late June. It is now technically the most overbought share in the financial index. We expect a correction of 5% to 8% and would lighten exposure at R168,23.
Sasol – Oil price hitting resistance
Sasol has rallied nicely as the oil price and USD/ZAR rallied in tandem. With the Oil price hitting resistance above $50 a barrel we believe investors should place a stop loss at the R400 level to lock in the recent gains and protect downside risk. The Rand could strengthen further over the coming days which will produce headwinds for a sustained rally. Place a stop-loss at R400 to lock in recent gains.
Shorter Term Ideas
  • USD/ZAR: Our Short trade in in the money after Baleka Mbete approved a Secret Ballot as we predicted. Hold for a pullback to R12.90, stop loss at R13,32.
  • Vodacom: Trading around our entry point, with buoyant markets place stop loss at R190.00
  • Sasol: Hit our target for a 11.64% gain. Stop Loss at R400
  • Sibanye Gold: Lift Stop loss to R16.50 to lock in 10% gain and raise target price to R24.50

Long Term Ideas       
  • MTN: Bouncing after last week’s results – Hold.
  • Coronation: Resistance at R70, hold for breakout. Move Stop loss to R66 to lock in profit.
  • Glencore: Rally intact, remain long.
  • Wescoal: Long term buy. Add below R2.15
  • Famous Brands: Oversold on dividend cut – accumulate below R125
  • Naspers: Making record highs. Take profit at R3000!
  • MediClinic: Moving higher - Hold.
  • Richemont: Rallied as expected, up 8.33% on the trade, place stop loss at R112 to lock in gains.
  • Tiger Brands: Position closed for a small profit.
Clean up:
  • Positions in the following stocks have been closed as they have not responded: Bidcorp, Hyprop, Ascendis, Invicta.
  • Longer term Holds: Holdsport, DBXEU, Massmart, Tongaat. 
(This article is an extract from Prodigy’s weekly Investor Digest. For more information contact Gavin McCarter on gavin@prodigyam.co.za.

JSE break-out after more than three years of trading sideways?
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