South Africa: Technical Preview - The Worst May Not Yet Be Over

Source from:  Business Day (Johannesburg) 26 November 2007 11/28/2007

THE ad-nauseam saying, "when the US sneezes the rest of the world catches cold", has again proved correct. With the exception of oil, almost all of the stock market's current woes were initiated in the US. As several Opec members despise the US, this may also contribute towards the soa ring oil price. The dollar has been rubbished by the euro, and the last of a succession of down-counts (each losing credibility) is € 1/$1,7. Perhaps it is its cosiness with the US that has undermined the value of sterling. While it has gained against the dollar, since mid-January, the pound lost almost 10% against the euro. The plus side for us is that our dollar imports will cost us less. But imports from Europe will cost more as the rand has lost almost 8% against the euro and almost 5% against the pound in the past month or so. The rand is oversold against the euro and the pound. To illustrate our market's woes I have used a moving average convergence/divergence (MACD) indicator to give a 12-month snapshot of the JSE overall index. It shows that, for the third time, it is in negative territory. Rather than a line I have used a shadow to illustrate the MACD's own moving average and the shadow has only just entered negative territory and, therefore, may dip further. A buy signal will come when the MACD crosses upward into the shaded area, as happened in August, or moves above the horizontal line, as it did in March. While some sectors will recover sooner than others, cautious investors should wait for the buy signal in the overall index. I have added three exponential moving averages a 13-day, a 33-day and a 60-day over the bar chart. The stacking order of these moving averages, long term above medium term above short term, show that the market is now in a short-term bear trend. The oil price is at its highest since 1979 when Opec limited its oil shipments. The Economist discusses two new papers by three prominent economists on how rich countries use less than half as much oil as they did in the 1970s after each inflation-adjusted dollar of GDP. I'd guess this is because oil using industries have become more fuel efficient. I'll make a further guess that at home we'll soon see lots of fuel guzzling four-by-fours formerly used to commute or visit shopping malls, packing the forecourts of second-hand car dealerships. The market perked up a little towards the end of last week, but, while the overall is at the bottom of a cycle, the Cycle Trends forward projection for the overall index warns that it may ease further. While in negative territory, the index's overbought/oversold plotting shows that it is less oversold than it was in June last year and this August, confirming that the worst may not yet be over. Currently its standard deviation channel numbers are resistance at 32231, support at 25454 and equilibrium at 28842. The gold price rose to $815, and platinum is challenging its $1476 high. Precious metal share indices tipped up at week end but some trembled at the news that the Harare government may grab a 25% stake in precious metals and diamond mines. Richemont, thinking of restructuring, is one of the few shares still looking healthy. Richemont may dip slightly along with the rest of the market, but has a longer-term count to R57. Remgro's plan to split its tobacco from its other interests attracted some attention leaving the share in a strong bull trend. Without the split Remgro has a longer-term count to R244. Hardly surprising, Sasol, with a count to R419, is also among the winners, but it may ease back, hopefully far enough to give would-be investors a chance to grab shares. Aspen, intent on expanding its market via a link-up with an Indian company, gained and then lost some ground. Aspen is in an area of fairly tough resistance, which if it manages to break, will give a new count to about R47. Enditem