One of the key developments during yesterday's trading session was the sell-off in the Rand (ZAR) i.e. the massive reversal in the USD/ZAR currency pair. As always, the local unit influences investors' positioning and helps traders understand which sectors they should allocate to or more broadly, which sector to underweight, overweight or remain neutral.
The sharp reversal in the pair (from the last hour of Monday evening's U.S. Trading session), is appearing to have influence investors aggressively bullish stance toward SA-focus shares, with several 'SA-Inc' shares starting to show early signs of fatigue as far as price/momentum is concerned.
From a technical perspective, this is understandable considering the daily and more importantly weekly overbought conditions that have been in place for at least 1 to 2 weeks.
At the index level, yesterday's candle on the JSE Top 40 took the form of a 'doji', which is indicative of indecision among market participants. This comes following a 10-day rally which has seen the index test all-time highs.
At a sector level, two extremes have been in place for the past two weeks: (1) JSE Financials, specifically Banks, have traded at the most overbought levels relative to the broader market. (2) Diversified Miners, on a weekly basis (relative to the broader market), came into this week at the most oversold levels since 2016.
These extremes are best viewed through comparing the Big Fives: Diversified Miners vs Banks.
The ratio has reached the box and, while broadly in a downward trend, has started to shown signs of a slowdown in downward price momentum.
The original and follow-up charts are shown below:
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Lester Davids
Analyst: Unum Capital
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