ARTICLES

Correction

The progress of the S&P500 index of the 500 largest companies on Wall Street is important because stock markets around the world, including the JSE, tend to follow it sooner or later.

On 19^th January this year, something momentous happened when the S&P broke above its previous all-time record high – made almost exactly two years ago at 4796.54. This upside break confirmed that, after the COVID-19 aberration and then the unusually large 25% correction in 2022, the great bull trend which had begun in 2009 was finally continuing.

The upside break gave the bullish optimists on Wall Street a licence to go a little crazy and they drove the index up almost 10% on a tidal wave of optimism to a new record high of 5254 on 28^th March 2024. The optimism was built at least in part on overwhelming excitement about the effect of artificial intelligence (AI) in such companies as Nvidia. It was also fuelled by the extraordinary growth in the US economy even in the face of record high interest rates. Consider the chart:

You can see here that, after some backing and filling, the S&P500 index broke above the previous record high of 4796 set on 3^rd January 2022. What followed was an extraordinary display of bullishness and a very strong upward trend. This upward trend began to run into difficulties in mid-March 2024 and finally ran out of steam at its closing peak of 5254 at the end of that month.

We had by then for some time been warning of an impending correction – which we said would probably take the index back to its previous record high of 4796. It is quite common for a previous resistance level, once it is penetrated, to become the support level in an upward trend.

The market action still indicates a significant amount of investor bullishness. There are still plenty of frustrated bulls looking to “buy the bottom” – but right now this overdue correction is just too strong for them.

So far, the index has fallen about 5,5% - but we expect that it will probably fall further to somewhere close to resistance at that previous record high of 4796. Within the correction you should expect some small rallies – nothing in the markets moves in a straight line! On that point, it is rare for the S&P500 to fall on six consecutive days as it has just done, so we expect it to go up on Monday the 22nd of April 2024.

From a fundamental perspective, the US monetary policy committee (MPC) having held rates unchanged at its latest meeting is talking about rates having to remain high for longer. The first rate cuts are now only expected at the September meeting.

The fact that the US economy created 303 000 new jobs in March 2024 shows that it is still far from cooling down despite the fact that rates have been at record levels for a while.

The correction on Wall Street is being followed around the world on other markets.  London (FTSE250) is down 2,7%, the German Dax is down 4% and the Nikkei in Japan is down 9,3%. The JSE, although generally more volatile, is about 5% off its recent highs.

In our opinion, this is not the start of a bear trend. It is simply a normal, healthy correction within the long-term bull trend. It will almost certainly end fairly soon and then the S&P500 will go on to break up a new record high.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Shoprite

In their article on 10^th April 2024, Checkers sweeps Pick n Pay as it opens 5 new stores in one day., Businesstech drew attention to the fact that Shoprite had taken over five stores from Pick ‘n Pay on the East Rand. Pick

WeBuyCars

In a few days’ time, Transaction Capital (TCP) will unbundle and separately list its second-hand car sales company, WeBuyCars (WBC). The main benefit of this is to release the value of WBC into the hands of its shareholders. When the listing is complete, on 11^th April 2024, WBC will have a total of 417,2m shares in issue which are expected to

Gold and Harmony

In our last Confidential Report, published on 6^th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold

Reverse Takeover

At the end of October 2023, Mix Telematics (MIX) was a relatively small fleet management company with a market capitalisation of just R2,3bn listed on both the JSE and the American NASDAQ. Its shares on the JSE were wallowing at a low of 380c. This compares with its competitor, Karoo (KRO), also listed on the JSE, but which was at the time, more

Rare Opportunity

You may not have been aware of it, but last week, between Monday and Friday, there was an opportunity to make an 80% profit on your capital. This opportunity occurred because of insider trading on a little known and traded share called Quantum Foods (QFH) in the poultry and animal feeds business.

Generally, the poultry business is

Excessive Bullishness

On Friday last week, the S&P500 index posted yet another new record closing high, but this time just one point higher than the previous day at 5088. This means that the index, which measures the progress of the 500 largest companies on Wall Street, has been climbing without a significant correction for nearly four months. Consider the chart:

Lessons from Transcap

As a private investor it is very important that you study what has happened in the past and learn from it. The progress of Transaction Capital (TCP) has provided us with an excellent opportunity to examine and learn from a complete cycle in an institutional favourite share. We can examine the entire cycle and see how to profit from it. In this regard, it is important

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about

4Sight

The world has, in the last twenty years, entered what has been characterised as the 4^th Industrial Revolution (4IR). It has been described as “... the biggest structural change of the past 250 years — a transformation of scale, scope and complexity unlike anything humankind has experienced before.” In simpler terms, 4IR refers to the digital convergence of

The Great Bull Resumes

On the 12th of June 2023, we published an article, headed "Bull Trend?". In that article we suggested that, after a 25% correction, the great bull market on the S&P500 which began in March 2009 was still intact and would, in time break to a new all-time record high, above the high