ARTICLES

The Corona Correction

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:

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.

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PDSNET ARTICLES

Bitcoin's Collapse

We have said previously that cryptocurrencies like Bitcoin cannot be assessed using fundamental analysis – because they have no fundamentals. They have no balance sheet or income statement, and they generate no income for investors. For this reason, they can only be assessed technically - by looking at the charts.

Speculative Opportunity

PDSnet is mainly concerned with teaching private investors about investment and medium to long-term opportunities on the JSE. The foundation of this approach is that South African tax law treats any gain on a share held for longer than 3 years as a capital gain. In other words, holding a share for more than 3 years means that the investor will not be treated as

Scary Government Debt

Just like a household or an individual, a country’s government goes into debt because it spends more than it receives in taxes and other revenue. The important difference, of course, is that governments (unlike households or individuals) can actually create money out of nothing to finance their deficit if they choose to. This is known as quantitative easing (Q/E).

Correction

On the 10^th of July 2024, we tweeted (on “X”) that “...some sort of correction is looking more and more likely.” Four trading days later on the 16th of July 2024, The S&P500 index reached its highest point (5667.2) and began that correction. So far, the S&P has fallen 8,5%. Consider the chart:

WeBuyCars - Follow-up

WeBuyCars (WBC) was spun out of Transaction Capital (TCP) and separately listed on the JSE on 11^th April 2024 – just over three months ago. Before the listing we published an article on the 8th of April 2024, in which we suggested that the share would be a solid blue-chip

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)

Murray & Roberts

A company’s debt is critical in establishing the risk inherent when investing in its shares. High debt levels expose the company to high interest and capital payments and can swallow up a large part of whatever profits it makes. Low debt levels give the company the headroom to invest in further growth either organically

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost