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To buy or sell the JSE in November?

by , 10 November 2021
To buy or sell the JSE in November?
This month is a major one for South Africa…

On 1 November we had the local municipal vote where we saw negative sentiment for both the rand and bonds.

In fact, not only did the the rand fall over 1.1% versus the dollar, the nation's local-currency debt also dropped 1.2% in dollar terms.

This weaker rand helped boost resources share prices, as our resources are exported in US dollars.

Investors and institutions now await Finance Minister Enoch Godongwana's maiden medium-term budget speech on Thursday (11 Nov).

We then have South Africa's Reserve Bank rate decision due next week Thursday (18 Nov).

And so, most traders and investors I've spoken to have mixed feelings with where the JSE ALSI is heading.

Now I am no fortune teller, but I have all signs pointing up for the JSE ALSI this November…

Here's why…
  
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Reason #1: INDM is the chart you need to be looking at
 
October was an exceptional month for the JSE All Share Index (ALSI).
 
We saw the ALSI up over 5.9% higher.
 
With commodity prices moving up, this helped lead to a rally in the local mining sector (which equates to around 40% of the JSE’s index).
 
And since 8 October, we’ve seen a positive correlation between the JSE Industrial, Metals and Mining Index (INDM) and the JSE All Share Index (ALSI).
 
This means, when the INDM goes up, the ALSI tends to follow.
 
See below…
 

 
Recently, the INDM (blue line) rose 20% in a month.
 
This was mainly due to a 49% rally in Royal Bafokeng Platinum Ltd.
 
It was released that there were open talks for the company to be bought by Impala Platinum Holdings Ltd.
 
We then saw a domino effect which led to both resources and industrials running up 8.44% and 6.73% for the month.
 
In a month, this sector’s strength helped the ALSI to move up over 5.9%.
 
And looking at the volume of buying and the strength of the INDM, I don’t expect the upside to end any time soon.
 
In fact, statistically speaking, as long as the (INDM) Blue Line stays above the (ALSI) white line I expect the buying to continue and for the ALSI and the INDM to continue up.
 
Even Peter Takaendesa, head of equities at Mergence Investment Managers, is optimistic on the outlook of stocks. He said,
 
“With the metal prices to remain quite strong, the index is likely to perform well into 2022.”
 
Reason #2: The JSE is likely to rally on strong US corporate earnings
 
As the COVID-19 cases and deaths continue to drop overall, investors are hoping and expecting another round of strong earnings.
 
As you know, the US is a leading index.
 
When it rallies, the JSE tends to follow.
 
And I’m seeing a number of analysts who are feeling optimistic about the US earnings…
 
The first batch of third quarter earnings results that will be released this week, is with heavy-weighted tech. 
 
One senior market analyst at Oanda, Craig Erlam, showed his optimism with these set of results in a statement:
 
“It's been a slightly positive start to what is shaping up to be a very busy trading week as big US tech prepares to announce third-quarter results. Earnings season has been very promising so far”.
 
There are many other companies that will be releasing their results, and right now I’m seeing positive sentiment.
 
But the most important reason I’m buying the JSE is because of what I see in the charts…
 
Reason #3: Why this Inverse Head and Shoulder is showing a 5,805 points rally to come
 
 
In the above daily chart of the JSE ALSI 40 (ALSI40), it has been moving in a consolidation (sideways) pattern.
 
This is also known as an Inverse Head and Shoulders…
 
Basically, this formation has a right shoulder, head, left shoulder and a neck line (Shaded area).
 
On 19 August 2021, the pattern started forming. It formed a left shoulder (small rounding bottom), head (large rounding bottom) and a right shoulder (small rounding bottom).
 
Then on 26 October, the pattern completed and the price broke up and above the neckline.
 
This means, the buyers won and we should see a lot more buying in the next couple of weeks.
 
Due to the reasons, I mentioned above, the Christmas Rally is coming up (which I’ll save for another article) so we can calculate where we can expect the JSE ALSI to head next.
 
To calculate the price target, we’ll take the difference between the high and low of the formation and we’ll add it to the high.
 
Price target = (High – low) + High
= (60,904 – 55,099) + 60,904
= 66,709
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Here’s how we’ll profit from the 5,805 point JSE rally
 
First, I'll buy the JSE ALSI 40s CFDs and hold it until it hits my price target.
 
Second, I'll be looking to buy a number of JSE companies that will push up the index.
 
I'm talking about companies like Anglo, Glencore, BHP Billiton, Sasol, Anglo Gold and other resources that are outperforming other sectors on the JSE.
 
To see my trade ideas you need to join my elite Red Hot Storm Trader members, you can sign up risk free for 90 days..
  
Trade well, live free.
   
Timon Rossolimos,
Analyst, Red Hot Storm Trader


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