ARTICLES

New Record High

As we predicted, the S&P500 reached a new all-time record high on Thursday 21^st October 2021 at 4549.78. This officially means that the correction that it was going through is over. That correction took the index down to a closing low of 4300.46 (on 4th October 2021) – which is a 5,2% decline from the cycle high of 4536.95 made on the 2nd of September 2021.

In the end, this turned out to be yet another “mini-correction”  of less than 10% - the 10^th since the COVID-19 V-bottom last year. This means that the major correction, of between 10% and 20%, which we have been talking about, is still coming.

What was notable about this correction, when compared to previous mini-corrections, was the duration of the downward trend and the sharpness of the recovery. It took 21 trading days to reach its low – which means that the bears really intended to take the market further down. They were strongly opposed by significant bullish sentiment which was evident in the “buy the dips” rhetoric and so prevented the correction from gaining any momentum. Then, when it became obvious that the bears were losing direction, the recovery was rapid – taking just 6 trading days to reach new record territory.

The bulls clearly took heart from the fact that the potentially dangerous month of October was substantially behind them, and the traditional Christmas rally was imminent. Consider the chart:

The last three days on the chart above were characterized by backing and filling as the index struggled to rise above the previous cycle high of 4536.95. The final day on the chart above was last Friday (22-10-21) which was characterized by a “long-legged doji” candle where the S&P went well above and below its opening but ended up just slightly down on the day: Consider the market action of Friday 22nd October 2021:

The intraday market action for Friday shows that there is still considerable uncertainty in the market about the new record closing high. You can see how the index, having made an all-time intra-day record high (4559.67), made a low of 4524 and then struggled to remain close to the previous day’s record closing high. The danger, of course, is that the new record high close could turn into a “double top” – which is a bearish formation. Technical analysts all over the world are now waiting to see if the upside break can be sustained and extended – or if the bearish sentiment will return to take the index down again, thus forming a double top.

You might wonder why we are so preoccupied with the minutiae of the S&P’s progress. The reason is that the stock markets of the world, including the JSE, tend to follow the S&P – so it is always your best indication of what is likely to happen. As a private investor, you need to always be watching the S&P to see where world markets are and where they are going. The direction of the S&P will establish whether you are looking at a bull trend or a bear trend. It will give you an indication of whether this just a correction and therefore a buying opportunity, or the start of a new bear trend, which would mean that you should be out of the market completely.

Our view is, and always has been, that we are in a mature primary bull trend, which is being peppered by mini-corrections (of less than 10%), but that we are over-due for a major correction of between 10% and 20% - which now seems unlikely to happen before next year.  

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PDSNET ARTICLES

Market Correction

On Friday, the S&P500 index fell about 1,9% - and that was the fourth consecutive day’s fall – which took this correction to 8,3% from the record high of 4796,56 made on 3^rd January 2022. That makes it is by far the largest correction in the 20 months since the COVID-19 V-Bottom in March 2020. Consider the chart:

The Rand 2022

It is that time of year when various experts feel it incumbent on themselves to make predictions – especially for the progress of the rand during 2022. Of course, the strength of the rand is a vital component of any private investor’s analysis because so many of our shares have significant interests overseas or are engaged in exporting.

Aveng Opportunity

Over the past few years, we have consistently recommended Aveng (AEG) as an opportunity. Those who have followed our advice have more than doubled their money.

By the start of 2022, the company had substantially reduced its debt and completed a 500-for-1 consolidation. These two events have returned the share from being a marginal penny

Portfolio Structure

Private investors often accumulate a portfolio over a number of years, as and when they have surplus capital available. Typically, they do not give much thought about how that portfolio should be structured to maximize return and minimize risk.

To begin it is important to think about how many shares you want to have in your

Clicks

In our company investment club (which we introduced you to in our article on 14th December 2020) we showed that we had 46 Clicks (CLS) shares for which we had paid an average of R228.17. Subsequently we bought a further 41 Clicks shares on 3 of May 2021, at a cost of 245.61. This transaction brought our average cost up

Capitec

Capitec has been, arguably, one of the best investments on the JSE over the past 20 years. It was launched by PSG and listed on the stock exchange in February 2002. Since then, it has become a disruptive powerhouse in the banking industry, consistently taking market share away from the four big banks in South Africa. By market capitalisation it is

Aveng Consolidation

With the destruction of the South African construction sector following the 2010 Soccer World Cup, the Aveng share price collapsed from around R75 in August 2008 to as little as 1c following its two 1,5c rights issues in 2021. The company is now left with two profitable companies:

1. Moolmans, a construction

Dividends

Three weeks ago, on 15^th November 2021, we published an article about Grand Parade (GPL) in which we drew attention to the fact that it had broken up through its long-term downward trendline and was now in a new upward trend. We suggested that this made it worthy of your attention as a private investor. What we did

The Confidential Report - December 2021

America

The US economy is still booming. Weekly jobless claims, for the week ended 20 November 2021, fell 71 000, while consumer spending jumped 1,3% in October month alone. Third quarter gross domestic product (GDP) came in at 2,1% - hammered by supply constraints, but above analysts’ expectations. Unemployment has fallen to 4,6% and

Transaction Capitals Trendline

In last week’s article on Grand Parade, we drew your attention to the importance and usefulness of downward trendlines (drawn above a downward trend) in establishing the best point to buy a share. This week we draw your attention to the benefit of upward trendlines (drawn below a rising trend) as a method of determining when a share, with a strong rising trend, has corrected