The Corona Correction

29 January 2020 By PDSNET

One of the enduring characteristics of markets is that they over-react. The size of their over-reaction depends on exactly where they are in the cycle and whether sentiment at the time is generally negative or positive. The S&P made a new all-time record high on the day before Martin Luther King Jr Day (20th January 2020) – after a consistent run which has lasted since the beginning of October 2019 – almost four months. Clearly, the market is now looking for a reason to correct. And since Donald Trump has been preoccupied with his Impeachment trial, he has been leaving the Chinese and the rest of the world in peace.

The coronavirus is becoming the very excuse that markets need to correct. With growing numbers of people infected, a rising death-toll and the spread to countries outside China, the virus has caused some panic on world markets. The S&P500 index fell 2,6% from its highest point (3329.63 reached on 17-1-20). Technically at record levels and after a 4-month run, the S&P was surely due for some sort of correction. In the absence of any negative tweets from Donald Trump, the spread of the coronavirus is providing the necessary scare. But can a disease which has so far only caused deaths in China – really damage the world economy that badly. The restrictions on movement inside China, imposed by the authorities will certainly impede the economy. China also is the world’s largest importer of commodities which could hurt South Africa – but at this stage we feel that the 2,6% fall in the S&P is probably over-done. That does not mean that it cannot fall further. Consider the chart:

S&P500 Index September 2019 to January 2020 - Chart by ShareFriend Pro

If this is the start of a correction, then you can expect either the virus or some other reason to take the S&P down at least 10%. In our view, authorities are moving quickly to contain and control the spread of the virus which has less than one third of the mortality rate (2,8%) of the SARS virus (9,6%) – but appears to spread more quickly. Scientists are urgently engaged in finding a vaccine and an effective treatment. Of course, the rate of infection could become far worse, but we believe that it will not spread significantly beyond China and that the situation will be brought under control fairly soon. In our view,  this correction has the potential to become a buying opportunity – especially for shares like Prosus, which have taken a sharp fall. Look at the chart of Prosus:

Prosus (PRX) October 2019 to January 2020 - Chart by ShareFriend Pro

You can see here that Prosus made an “island” at the start of December 2019 and has been moving up from that point. The island created support at around R1020 and the share may fall further to reach that level. Technically, it seems unlikely that the R1020 level will be broken. You should watch Prosus and the S&P closely to find the best buying opportunities.


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.



Share this article:

PDSNET ARTICLES

Naspers

Naspers is the largest share on the JSE with a market capitalisation of R1,67 trillion. Naspers was founded in 1915, as a printer and publisher of newspapers and magazines. It has since evolved into an international social media, entertainment and gaming company.

This share has the problem that it is undervalued in relation

Sibanye Vs Amplats

Right now, comparing Amplats with Sibanye is instructive for private investors – and made more interesting because:

  1. They are both mining houses producing precious metals, mainly platinum group metals.(PGM's).
  2. They have the same financial year-end (31st December).
  3. They have both recently produced trading statements for the 2020 financial

Hudaco

In the current environment investors should be looking for listed companies that have managed to weather the COVID-19 storm and emerged with strong growth. These companies would have had two important components before the pandemic began – a strong balance sheet and highly competent management. Hudaco had both.
Hudaco is a company with two primary divisions:

  1. The

The Confidential Report - February 2021

America
The relatively calm installation of Joe Biden as president and the Democratic Party’s control of Congress were appreciated with relief by markets worldwide. The S&P has risen by almost 18% from its low of 3270 on 30th October 2020 to its recent high of 3855 on 25th January 2021. Biden has promised further substantial stimulation

Elimination of the Bears

As far back as January 2016, billionaire George Soros went short on the S&P500 index. This means that he thought the S&P500 was going to fall heavily and he took positions which would profit from a major fall in that index. Later in May 2017 he doubled up on those “short” positions and he has been taking more short positions ever since. As recently as final quarter of 2020 he bought

Truworths

Truworths (TRU) is a retailer of fashionware in South Africa and the UK. As such its business has been damaged by the impact of Brexit in the UK and the recessionary conditions in the South African economy. Both countries have then been impacted by lockdowns which prevented in-store sales for a period of time, beginning in late March 2020. The second wave of the pandemic has also been a factor. In the UK,

The Coming Blow-off

At the start of 2021, it is as well to stand back and consider the context of where world markets are as they slavishly follow Wall Street up to new record highs.  Consider the 12-year chart of the S&P500:

 
The chart shows that the great bull market which began in March 2009 is on-going. It is moving within a clearly defined channel.

Window Dressing

We all know that our market, the JSE, is dominated by the big institutions – the pension funds, unit trusts, insurance companies and a scattering of large fund managers. These institutions together account for at least 90% of the trades on the JSE by value. We private investors make up the rest.
Big institutions have huge holdings of mostly blue-chip or

The Rand Bull

For some years now we have believed that the rand was underpriced in relation to the currencies of first world countries, especially the US dollar. We have also said that the rand, as one of the most heavily traded emerging market currencies, is a barometer of the international investment community’s perception of risk in the world economy. When investors

Start an Investment Club

A few years ago, we developed software to manage an in-house investment club for our staff members. We now offer it to any member of the public who wants to set up an investment club, free of charge. Using the daily closing prices from the JSE, this software is designed to keep track of the investments of a group of people who have decided to work together on investing directly