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Going back to our opening line, some of the JSE’s darlings that have taken a major fall include:
British American Tobacco -33%
EOH over 87% and
Tongaat Hulett -89%
This has been a major lesson for us South Africans as we have now seen that even the most established, profitable, highly valued and diversified companies can still collapse like a penny stock. This is due to abysmal returns, lack of leadership, fraud, mismanagement global issues and the ongoing trade-wars.
In fact, if we consider how the JSE has performed over the past three years you won’t be surprised to know the annual return has only been 5.6%. The sad reality is you would’ve been better off leaving your cash in the bank.
With the ever-escalating US-China trade war – it is making things worse for stocks world-wide.
In fact, just recently on 1 September, tariffs of over $110 billion worth of Chinese goods were added and the JSE took yet another tumble, as we saw a number of both mining and retailers down including.
A 3.37% drop on Anglo American Platinum
A 5% fall on Imperial Logistics
A 4.56% drop on Massmart and
A 4% fall on Intu Properties.
And we can expect a further fall for the JSE in the final quarter of 2019.
Nick Pitro, senior consultant at Austin Morris Associates confirmed
“If you live in South Africa and have a house and pension here, keep them, but take as much of your investable money out as you can. Staying invested in local assets is likely to erode your wealth over time”.
Why this box is setting up a 9.13% drop on the ALSI
Looking at the daily chart of the JSE ALSI index, you can see that the price has fallen over 11% in the past three months from 53,000 down to 47,065.
And during the last two months, it has been forming and consolidating in a pattern known as a continuation box formation (Grey Shaded area). This pattern is more often than not reflects a pause in the current downtrend direction, before the sellers take over again to drive the price lower.
When this happens, we can expect the price to break below the box formation, which will take it to the next target of 44,501.
To calculate this target, we’ll simply use the Top-Bottom formula.
Target = (Bottom - Top) + Bottom
= (47,065 – 49,629) + 47,065
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Once the price breaks below 47,065 and continues to the downside, we can then expect another 9.13% drop to 44,501 which we can profit from.
Either you can short the JSE ALSI and hold until it reaches the target where you can bank a gain.
Or you can wait for my next SMS
where I'll look out for the best stocks to sell high and buy low for a profit. I'm talking about sectors that fall when the JSE falls such as retailers, insurance and even industrial companies.
Analyst, Red Hot Storm Trader