Breadth Data Helps Assess Reward-To-Risk (Oversold Goes From...)

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Over the weekend we published the end of week breadth data, highlighted the overwhelming number of shares which were trading in oversold territory. The data covers all shares with a market cap above R10bn. As you may have read, out of the 98, 40 was oversold, which is a rarity! As per our comment, the interpretation of the data was as follows: "The data suggests that the market is heavily skewed towards oversold conditions. This widespread oversold reading may point towards a potential near-term buying opportunity as the large number of stocks at these levels could be poised for a rebound. However, the lack of strong bullish momentum and the prevalence of bearish readings indicates that any potential recovery may be short-lived or met with resistance. In essence, the market is currently overwhelmingly bearish, with a possible short-term opportunity arising from the oversold conditions, but caution is advised due to the overall weakness."

Today (Monday, 07 April) saw several shares trade lower early in the session, which was followed by strong rebounds on an intraday basis. As of today's close, only 19 shares trade in oversold territory versus the 40 after last week Friday's close. There were pockets to play in which created cash-generating opportunities for traders who took advantage of the oversold conditions. Well done if you made some money today!

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Previous Post (Saturday, 05 April at 06h20): JSE Market Breadth: After The Close

Market Summary:

The JSE Mid & Large Caps market, as indicated by the short-term trend readings of its 98 constituents, exhibits a predominantly bearish sentiment. A significant portion of the market, 40 constituents, are currently classified as oversold, while another 23 are experiencing high bearish momentum and approaching oversold territory. This means that a substantial majority (63 out of 98) of the stocks are showing signs of weakness and potential for a near-term bounce.

Conversely, there are no stocks in the overbought or high bullish momentum categories, and only 4 are considered to be in a strong uptrend. A further 12 stocks are in a neutral position, and 19 are classified as weak.

Interpretation:

The data suggests that the market is heavily skewed towards oversold conditions. This widespread oversold reading may point towards a potential near-term buying opportunity as the large number of stocks at these levels could be poised for a rebound. However, the lack of strong bullish momentum and the prevalence of bearish readings indicates that any potential recovery may be short-lived or met with resistance.

In essence, the market is currently overwhelmingly bearish, with a possible short-term opportunity arising from the oversold conditions, but caution is advised due to the overall weakness.

Lester Davids

Analyst: Unum Capital