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Don't get caught in the JSE ALSI Bulltrap - Here's why

by , 02 June 2022
Don't get caught in the JSE ALSI Bulltrap - Here's why
As a novice trader, it's easy to try and guess where the market's bottom is.

It's easy to see a bounce in a falling market, and assume that things are going up from here.

But calling a bottom is one of the most dangerous things a trader can do. In fact, with trading we say you're trying to ‘catch a falling knife'.

Most traders pile up their positions with a whole bunch of longs (buys) as they believe they've spotted the low of the downtrend. And this is when the market falls even further.

Already we've seen in a few short months:

• The SP500 has dropped over 15%
• Bitcoin has lost over 28%
• Terra Luna coin has crashed over 99%
• Gold has lost 12% in value

And I can go on…

The JSE ALSI 40 is also in hot water.

In this article, I’m going to introduce you to a dangerous trap formation that I believe traders are going to fall into with the JSE ALSI and why I am going to take full advantage and profit from the major downside to come for the index.

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Special Message from Francois Joubert

Why I’m buying these JSE stocks

Hi, Francois Joubert here, small cap analyst for Red Hot Penny Shares. Last year was one of our best years on the JSE for penny stocks at the height of the pandemic.

For 2021 – we closed 20 shares at an average gain of 72% and a win rate of 80%

And that’s why I’m encouraging my readers to stay invested irrespective of the market bumps because there is always value in the markets as long as you know where to look. 
You can trial my service here.

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Why the JSE is collapsing in 2022

Let’s look at the JSE ALSI 40 daily chart…

 
 

The JSE ALSI 40 chart is an index that makes up 40 of the highest market cap (Volume X Share price) companies on the JSE.

Since, 3 March 2022 the JSE has fallen from the high price of 71,480 down to a low of 59,687 (Red line).

That’s a frightening 16.4% drop in the span of two months.

Then on 12 May 2022, the JSE reached some form of support (floor level) at 59,687 and since then has been moving up to a high of 63,789. Let’s zoom in on this…

 
 
As I mentioned earlier, this is where new and inexperienced traders are buying every market they can, as they believe they’ve spotted the bottom.

Now out of my 18 years of trading, I’ve seen this many times and in my opinion, this is the most dangerous time to buy stocks.

What I believe is forming in this chart has two names.

A bull trap is about to scare traders out of their longs (buys)

The one name for this formation is known as a bull trap.

A bull trap is a short bounce up in price of a market after a big sell off.

What happens is, this move creates a false sense of security and optimism which results in buyers trying to push the market up.

But with economic instability, ongoing world-wide fear and continued political issues with what is going on in Russia, Europe, America and the Ukraine, the upside will be short lived.

Also, the weak upside that we see, are also the sellers (shorters) in the market trying to get out of their positions. Once this happens, we have a good chance of seeing the market fall again.

Hence, we should not get caught up in the bull trap.

And the charts have already given me our first price target.

Why this Bearish Pennant is showing another 12% drop for the JSE ALSI
 
 

The second name for this bearish formation is known as a Rising (bearish) Pennant.
This is a pattern that looks like a rising rectangle at a diagonal slope.

The problem is, the price has already broken below the pennant, showing there is downside to come for the index.

I’m going to be generous with my price target prediction.

I’m going to first make a prediction that the next level I expect the JSE ALSI 40 to drop is 54,300. This is based on a support level from the last two years.

If the price breaks down further, I’ll be sure to write to you on where I expect the ALSI 40 to head to, next.

In the meantime, there are two ways I can profit from this…

2 Main ways to profit from the JSE ALSI 40 12% fall

First, I will go short (sell) the JSE ALMI CFDs and hold the trade until it hits my price target at 54,300.

Second, I will be looking for a number of shorts (selling) positions on the JSE. I will then send them out to my
Red Hot Storm Traders so they can ride the profits as the market crashes.

Trade well, live free.

Timon Rossolimos

PS. Not yet a Red Hot Trader, then go here to see how you can
road test my service for 90 days free.




Don't get caught in the JSE ALSI Bulltrap - Here's why
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