As theunfolds on you either hold or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your levels very closely because you are operating in a where the odds are decidedly against you.
For those in cash, your position is risk-free, in the short term, but over time yourwill be eroded by . This point was dramatically demonstrated by a recent analysis which showed that you would need R3200 today to buy what you could have bought in 1980 with R100. Your strategy is to try to pick up quality shares when the market hits bottom so the further down it goes the happier you become. The danger is that you will buy back in too early, before the has fully run its course.
It is useful to look at what we know about how aunfolds – although it is worth noting that, because of the wild card of (Q/T) in the US and internationally, this bear trend will probably not fit the usual .
In a bear trend theof buying a share which goes up is obviously considerably lower than it is in a . It is possible, but it is just far less likely. The safest place to be is in cash.
Over the yearshave developed a number of methods for determining when a bear trend is over. The problem is similar, but not the same, as trying to determine when a is over. There are always in bear markets as there are in s. The difficulty is to distinguish these short-term adjusting from a shift in the long-term direction in the market.
To some extent, previouss can help establish and levels. Consider the of the S&P500 over the past six months:
Previous turning points can often be good indications of where the market will encounter resistance. Thus, in the chart above, you can see that there is considerable resistance at around 4170 on the S&P and also now at around 3900. On Friday last week, the S&P rose to 3911 which is just slightly above that 3900 resistance level.
At this point we have to say that the probability that this rally will be short-lived is far higher than the probability that it will be sustained. The 3% jump in the S&P Friday trade looks overdone to us. It came as the chairman of the US, Jerome Powell, said that, while the Fed hoped to avoid a in the US , it remains a definite possibility. Somehow, the market interpreted that as meaning that future hikes would be moderated from the 75- hike of the most recent (MPC) meeting. More likely, in our view, the market was “grasping at straws” after the punishing of the previous two weeks. In other words, this looks like a “relief rally” that will probably be reversed in the next week or so. Certainly, it is our intention to remain in cash until we have a clearer indication.
One such sign would be an upward turn in the long-datedof the S&P. On the chart above you can see that the 300-day simple moving average of the S&P turned down on 10th June 2022 when the S&P failed after repeated attempts to rise above the resistance line at 4170. The 300-day moving average has now been falling for 10 – which is a pretty convincing indication that we are in a primary bear trend that will last for some time. The S&P would have to climb back to 4380 to break up through this – which seems very unlikely, despite last week’s rally.
Of course, South African shares have been doing somewhat better than the S&P500 – as can be seen from the chart below:
This chart shows the in the top half and a chart of the Overall index against the S&P500 in the lower half. You can see here that the JSE Overall index reached its a full 3 months later than the S&P on 2nd March 2022 – and you can see that throughout the six months of the downward trend on the S&P, the JSE Overall index has been consistently out-performing it.
In our view, this is not necessarily a good thing. It has tended to lull South African investors into a false sense of security. They are perhaps feeling that the problems in America and Europe will somehow pass us by. This is a mistake. South Africa has aneconomy and already we can see that are beginning to fall in response to the negative news coming out of the . Sooner or later, that downturn in commodity prices will have a direct impact on our economy and when it does the JSE Overall index will, in our opinion, catch up with Wall Street’s bear.
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