JSE Top 40 Index: Running +26%

Research Notes For 09 to 13 June > https://www.unum.capital/post/r0913june

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JSE Top 40 Index: The index is higher by 26% versus the low on Monday 07 April. The move is in line with the price action model reading at the time (included in the original note) where the long term reading (approximately 5 to 8 weeks) stated the following: "Aggressive selling is underway following a steady upward trend. Look for support at the prior swing lows to capture minor rebounds".

Here's a breakdown of the current price action:

• The 7-day trend is indicated as "Overbought," while the 14-day trend is "Very Bullish."

• Comparison: The 7-day trend being "Overbought" suggests that the price has risen significantly in a short period and might be due for a pause or pullback. Conversely, the 14-day trend being "Very Bullish" indicates strong upward momentum over a slightly longer timeframe. This implies that while the immediate short-term might see some exhaustion from being "Overbought," the underlying momentum over the past two weeks remains strongly bullish. The "Overbought" 7-day trend could be a temporary condition within the broader "Very Bullish" 14-day trend.

Potential Trading Approach:

• Short Term (Approximately Next 1 to 10 Trading Days): The model notes, "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."

  • Approach: While buyers are in strong control, avoid chasing the price higher. Look for potential short-sell opportunities if the price fails to hold the recent highs, targeting a move back down to the 8-period Exponential Moving Average (EMA). This suggests a tactical approach of fading strength if it shows signs of exhaustion.

• Medium Term (Approximately Next 2 to 4 Weeks): The model indicates "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."

  • Approach: Similar to the short-term, buyers are in strong control, but the same cautionary advice applies. Do not chase the price. Be prepared for potential failures to hold highs, and consider the 8-EMA as a short/sell target if such failures occur. This implies a continuation of the strong bullish sentiment but with an ongoing emphasis on tactical risk management around overextended moves.

• Long Term (Approximately Next 5 to 8 Weeks): The model states, "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."

  • Approach: The long-term perspective also shows buyers firmly in control. The consistent advice across all timeframes is not to chase the price and to be mindful of potential failures to hold highs, where the 8-EMA could serve as a short/sell target. This suggests a sustained bullish outlook, but with an underlying strategy that prioritizes patience and tactical selling into strength if momentum falters at key levels.

Overall Trading Considerations:

• Consistent bullish momentum: Both short and slightly longer short-term trends are bullish, supporting upward price action.

• Caution against chasing: A crucial and consistent theme across all timeframes is the warning against chasing the price. This suggests that while the overall trend is up, the market might be prone to short-term pullbacks or corrections.

• Tactical short opportunities: The repeated mention of "May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target" across all timeframes indicates that even within a strong bullish trend, tactical short-selling opportunities back to the 8-EMA are likely to arise.

• 8-EMA as a key level: The 8-EMA is identified as a potential target for short/sell positions if the price fails to hold higher levels, making it a critical level to monitor.

In summary, for JSE TOP 40 INDEX, the current view is strongly bullish across all timeframes. Buyers are in control, suggesting continued upward momentum. However, a significant and repeated caveat is the strong advice against chasing the price. Instead, the model emphasizes looking for potential short-selling opportunities if the market fails to hold recent highs, with the 8-EMA serving as a key target. This indicates a strategy of participating in the bullish trend but with a tactical approach to manage overbought conditions or temporary pullbacks.

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Previous Post (Sunday 06 April): JSE Top 40 Index: Weekly Chart Analysis

JSE Top 40 Index Analysis:

Short Term (1 to 10 days): The short-term reading is Oversold. This suggests that the index has likely experienced a significant decline and may be due for a rebound or consolidation. However, being oversold alone doesn't guarantee an immediate reversal.

Medium Term (2 to 4 weeks): The medium-term reading is Weak. This implies that the index has been trending downwards over the past few weeks, indicating underlying selling pressure.

Long Term (5 to 8 weeks): The long-term reading is Neutral. This suggests that over a broader timeframe, the index hasn't established a clear upward or downward trend.

Overall Assessment:

Taking into account the weighted importance (short-term being the most significant), the JSE Top 40 Index exhibits deteriorating price action. While the oversold reading in the short term might offer a temporary bounce, the weakness in the medium term, coupled with the lack of a strong long-term trend, suggests caution. The recent price action is more aligned with the medium-term weakness than the potential for a short-term recovery.

JSE TOP 40 WEEKLY CHART

Lester Davids

Senior Investment Analyst: Unum Capital