JSE Relative Sector Ratings: Here's What's Leading/Lagging

Research Notes For 16 to 20 June > https://www.unum.capital/post/r1620june

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Here's an analysis of each JSE sector across the different timeframes, with an emphasis on strength, weakness, improvement, or deterioration, and a final summary ranking. The short term carries the most weight, followed by the medium term, then the long term.

Key:

• Strong: Indicates outperformance relative to the Top 40.

• Neutral: Indicates performance in line with the Top 40.

• Weak: Indicates underperformance relative to the Top 40.

• Overbought: Suggests the sector might be due for a pullback (high demand).

• Oversold: Suggests the sector might be due for a bounce (low demand).

• High Bullish Momentum: Strong upward price movement.

• High Bearish Momentum: Strong downward price movement.

Hierarchy of Strength (from strongest to weakest):

Overbought > High Bullish Momentum/Approaching Overbought > Strong > Neutral > Weak > High Bearish Momentum/Approaching Oversold > Oversold

JSE Sector Analysis by Timeframe:

Technology vs Top 40

• Short Term: Neutral.

• Medium Term: Strong. (Improvement from long term's "High Bullish Momentum/Approaching Overbought").

• Long Term: High Bullish Momentum / Approaching Overbought.

• Overall: This sector exhibits strong positive momentum in the long and medium term, maintaining a neutral stance in the short term. The transition from "High Bullish Momentum/Approaching Overbought" in the long term to "Strong" in the medium term suggests a continuation of outperformance. There's no drastic change from medium to short term, simply a move to "Neutral," which could be a consolidation after strong periods.

Miners vs Top 40

• Short Term: Weak.

• Medium Term: High Bearish Momentum / Approaching Oversold. (Significant deterioration from long term's "Oversold").

• Long Term: Oversold.

• Overall: This sector shows persistent weakness. While "Oversold" in the long term might suggest a potential bounce, the "High Bearish Momentum / Approaching Oversold" in the medium term, and further "Weakness" in the short term, indicates continued downward pressure. The shift from "Oversold" to "High Bearish Momentum/Approaching Oversold" is a drastic negative change, highlighting deepening weakness.

Banks vs Top 40

• Short Term: Weak.

• Medium Term: Neutral. (Deterioration from long term's "Neutral").

• Long Term: Neutral.

• Overall: This sector is consistently neutral in the long and medium term, but shows weakness in the short term. The shift from "Neutral" in the medium term to "Weak" in the short term indicates some deterioration in recent performance.

Insurers vs Top 40

• Short Term: Oversold. (Significant deterioration from medium term's "Neutral").

• Medium Term: Neutral. (Deterioration from long term's "Neutral").

• Long Term: Neutral.

• Overall: This sector is primarily neutral in the long and medium term, but has significantly deteriorated to "Oversold" in the short term, suggesting a potential for a near-term bounce due to low demand. The drastic change from "Neutral" in the medium term to "Oversold" in the short term is a key point.

Gold Miners vs Top 40

• Short Term: High Bullish Momentum / Approaching Overbought. (Significant improvement from medium term's "Strong").

• Medium Term: Strong. (Improvement from long term's "High Bullish Momentum/Approaching Overbought").

• Long Term: High Bullish Momentum / Approaching Overbought.

• Overall: This sector demonstrates consistent strength across all timeframes, culminating in "High Bullish Momentum / Approaching Overbought" in the short term. The progression from "High Bullish Momentum/Approaching Overbought" in the long term to "Strong" in the medium term, and then back to "High Bullish Momentum/Approaching Overbought" in the short term, signifies robust positive momentum and increasing demand. This is a very strong sector.

Platinum Miners vs Top 40

• Short Term: Neutral.

• Medium Term: Strong. (Improvement from long term's "Neutral").

• Long Term: Neutral.

• Overall: This sector moves from "Neutral" in the long term to "Strong" in the medium term, then back to "Neutral" in the short term. This suggests a period of outperformance in the medium term, with a return to inline performance recently. The shift from "Strong" to "Neutral" from medium to short term suggests a cooling off after a period of strength.

Consumer Staples vs Top 40

• Short Term: Oversold. (Significant deterioration from medium term's "Weak").

• Medium Term: Weak. (Deterioration from long term's "Weak").

• Long Term: Weak.

• Overall: This sector consistently shows weakness across all timeframes, deteriorating to "Oversold" in the short term. The consistent "Weak" readings, culminating in "Oversold," indicate persistent underperformance and low demand.

Consumer Disc. vs Top 40

• Short Term: Oversold. (Significant deterioration from medium term's "Weak").

• Medium Term: Weak. (Deterioration from long term's "Weak").

• Long Term: Weak.

• Overall: Similar to Consumer Staples, this sector consistently displays weakness, reaching "Oversold" in the short term. The pattern suggests ongoing underperformance and low demand.

Healthcare vs Top 40

• Short Term: Weak.

• Medium Term: Neutral. (Improvement from long term's "Weak").

• Long Term: Weak.

• Overall: This sector is generally weak, with a brief period of "Neutral" performance in the medium term. The return to "Weak" in the short term indicates a continuation of underperformance. The improvement from "Weak" to "Neutral" in the medium term, followed by a return to "Weak" in the short term, shows a temporary positive shift that didn't hold.

Hospitals vs Top 40

• Short Term: Weak.

• Medium Term: Weak. (No change from long term's "Weak").

• Long Term: Weak.

• Overall: This sector exhibits consistent weakness across all timeframes, with no signs of improvement.

Coal Miners vs Top 40

• Short Term: Weak.

• Medium Term: High Bearish Momentum / Approaching Oversold. (No change from long term's "High Bearish Momentum/Approaching Oversold").

• Long Term: High Bearish Momentum / Approaching Oversold.

• Overall: This sector is significantly weak across all timeframes, characterized by "High Bearish Momentum / Approaching Oversold." This indicates strong downward price movement and low demand with no signs of reversal.

Telecoms vs Top 40

• Short Term: Strong. (No change from medium term's "Strong").

• Medium Term: Strong. (No change from long term's "Strong").

• Long Term: Strong.

• Overall: This sector demonstrates consistent and strong outperformance across all timeframes, indicating sustained positive momentum.

Paper & Pulp vs Top 40

• Short Term: Weak.

• Medium Term: Weak. (Deterioration from long term's "Oversold").

• Long Term: Oversold.

• Overall: While "Oversold" in the long term suggested a potential bounce, the sector has moved to "Weak" in both the medium and short term, indicating continued underperformance and an inability to recover. The shift from "Oversold" to "Weak" suggests that the potential bounce did not materialize, and the sector remains challenged.

Chemicals vs Top 40

• Short Term: Overbought. (Significant improvement from medium term's "High Bullish Momentum/Approaching Overbought").

• Medium Term: High Bullish Momentum / Approaching Overbought. (Significant improvement from long term's "Weak").

• Long Term: Weak.

• Overall: This sector has shown a remarkable improvement, moving from "Weak" in the long term to "High Bullish Momentum / Approaching Overbought" in the medium term, and finally to "Overbought" in the short term. This indicates very strong positive momentum and high demand, suggesting it might be due for a pullback. The drastic positive change from "Weak" to "High Bullish Momentum/Approaching Overbought" and then to "Overbought" is a very strong signal.

Luxury Goods vs Top 40

• Short Term: Weak.

• Medium Term: Weak. (Deterioration from long term's "Neutral").

• Long Term: Neutral.

• Overall: This sector has moved from "Neutral" in the long term to "Weak" in the medium and short term, indicating a deterioration in performance.

Summary Ranking of Sectors (from most preferred to least preferred, weighted by short-term importance):

1. Chemicals vs Top 40: Short-term "Overbought" with strong positive momentum from medium and long term. Highest demand.

2. Gold Miners vs Top 40: Short-term "High Bullish Momentum / Approaching Overbought" with consistent strength across all timeframes.

3. Telecoms vs Top 40: Consistently "Strong" across all timeframes, indicating reliable outperformance.

4. Technology vs Top 40: Strong in long and medium term, settling to "Neutral" in the short term, still indicating good performance overall.

5. Platinum Miners vs Top 40: "Neutral" in the short term after a "Strong" medium term, suggesting a recent cooling off but still in line with the Top 40.

6. Banks vs Top 40: "Weak" in the short term, but "Neutral" in medium and long term, indicating a recent dip.

7. Healthcare vs Top 40: "Weak" in the short term, with a brief "Neutral" period in the medium term, generally underperforming.

8. Luxury Goods vs Top 40: Deteriorated from "Neutral" to "Weak" in the medium and short term, indicating recent underperformance.

9. Insurers vs Top 40: "Oversold" in the short term after "Neutral" in medium and long term. Potential for a bounce due to low demand, but currently very weak.

10. Paper & Pulp vs Top 40: "Weak" in the short and medium term, and previously "Oversold" in the long term, indicating persistent underperformance.

11. Miners vs Top 40: "Weak" in the short term, and "High Bearish Momentum / Approaching Oversold" in the medium term, showing significant downward pressure.

12. Consumer Staples vs Top 40: Consistently "Weak," and "Oversold" in the short term, indicating consistent underperformance and low demand.

13. Consumer Disc. vs Top 40: Consistently "Weak," and "Oversold" in the short term, indicating consistent underperformance and low demand.

14. Hospitals vs Top 40: Consistently "Weak" across all timeframes, no signs of improvement.

15. Coal Miners vs Top 40: "Weak" in the short term, and "High Bearish Momentum / Approaching Oversold" in the medium and long term, signaling extreme weakness and strong downward momentum.

Lester Davids

Senior Investment Analyst: Unum Capital