JSE Market Breadth: Considerable Recovery

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Comparing this week's readings to last week's, we observe a significant shift in market conditions. The number of constituents in oversold territory has dropped dramatically from 40 to 0. Similarly, those with high bearish momentum approaching oversold have decreased substantially.

Conversely, there is a notable increase in the number of constituents in the neutral and strong categories. Additionally, we now see constituents in the high bullish momentum/approaching overbought and overbought zones, which were absent last week.

Last Week's Readings (Total Constituents: 98):

• Oversold: 40 constituents

• High Bearish Momentum / Approaching Oversold: 23 constituents

• Weak: 19 constituents

• Neutral: 12 constituents

• Strong: 4 constituents

• High Bullish Momentum / Approaching Overbought: 0 constituents

• Overbought: 0 constituents

  
  

Last week's readings indicated a significantly bearish market sentiment. A large majority of the constituents (40 + 23 = 63) were in oversold or approaching oversold territory, suggesting a potential near-term buying opportunity as these stocks might be due for a rebound. The absence of stocks in overbought conditions further supported this idea for a potential bounce.

This Week's Readings (Total Constituents: 100):

• Oversold: 0 constituents

• High Bearish Momentum / Approaching Oversold: 2 constituents

• Weak: 30 constituents

• Neutral: 47 constituents

• Strong: 14 constituents

• High Bullish Momentum / Approaching Overbought: 5 constituents

• Overbought: 2 constituents

  
  

Interpretation of Market Conditions:

The shift in readings from last week to this week suggests a considerable recovery from the bearish sentiment. The decrease in oversold and near-oversold constituents indicates that the potential buying opportunity observed last week might have played out, leading to upward price movements.

The increased number of constituents in the strong and approaching overbought/overbought categories now points towards a potential selling opportunity in the near term for those specific stocks, as they might be trading at levels above their intrinsic value and could be due for a correction. However, it's important to note that the largest portion of the market is now in a neutral state, suggesting a period of consolidation or indecision following the prior week's strong bearishness.

In summary, the market has transitioned from a state heavily skewed towards a potential near-term buying opportunity to a more balanced condition with a significant neutral component and the emergence of potential selling opportunities in a smaller segment of the market.

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Previous Post (Monday 07 April): Breadth Data Helps Assess Reward-To-Risk (Oversold Goes From...)

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