ARTICLES

Market Overview

This week, the US Federal Reserve Bank’s monetary policy committee (MPC) held interest rates unchanged at their historically high levels and said that they intended to hold rates at these high levels for longer than previously expected. This information was followed by the April 2024 non-farm job creation number which came in at 175 000 – considerably lower than expected and almost half of March’s revised 315 000 figure.

Markets have mostly reacted to these numbers negatively. The bulls on Wall Street have been trying to “buy the dip” for the past ten days in the hope that the correction is over. Despite the strong close on Friday which saw the S&P gain 1,26%, we believe that the correction may not yet be over.

One of the indications is that the drop in the price of oil during this correction on Wall Street is persisting. Oil closed at around $83 on Friday – significantly down on its high of over $91 on 5^th April and almost 7% down on the week.

The drop is partly due to the general relaxation of tensions in the Middle East where a ceasefire in the Israel/Gaza war may be imminent. It is also partly due to the fact that the driving season in America is almost over and the demand for fuel usually drops off as the summer holidays come to an end.

The fall in the oil price is good news for the Biden election campaign because it impacts almost all Americans positively – and it is bad news for Russia and Putin who rely on oil revenues to fund the on-going war in Ukraine. Consider the chart of the price of North Sea Brent oil:

Here you can see that after making a cycle high at $91.60 on 5^th April 2024, the price of North Sea Brent has been falling, culminating in 5 down days last week. The downward trend broke through the upward trendline which has been in existence since December last year and possibly indicates a new downward trend.

Of course, the weakening oil price is very good for South Africa and will help to bring the price of petrol down from its current high levels above R25 per litre. It will also help the rand to continue its current strengthening trend. Consider the chart of the rand against the US dollar:

For the past few months, we have been drawing you attention to the fact that the rand/US$ chart has been operating in a classical “triangle” and that sooner or later that formation would be broken, either on the upside or the downside, indicating the future direction.

It now appears that the rand has broken out of the triangle on the downside – which means it is strengthening and should continue to strengthen. There are many possible reasons for this, including:

1. A resurgence of  risk-on sentiment in international markets as bullish investors find reasons to be optimistic about the progress of US interest rates.
2. Optimism that the local elections will soon result in a better, new administration of the South African economy.
3. That a possible sustained drop in the price of oil will mean lower outflows and reduced pressure on the rand.

As a private investor you should try to develop a clear and consistent opinion on the future of those major indicators which will impact on the JSE. These include the S&P500, the price of oil and the rand/US dollar exchange rate.

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PDSNET ARTICLES - SEPTEMBER 2020

The Relationship between Fundamental and Technical Analysis

There are generally two approaches to share assessment – fundamental and technical analysis. The fundamentalist is trying to answer the question, “How good will the company be as a generator of dividends in the future?” while the technician is looking for patterns in the share’s price and volume charts to improve his predictions of where the share

Oil

The Oil market is usually an excellent barometer of the state of the world economy. When there is growth, people buy more cars and drive more, more products are consumed which means they have to be transported to retail outlets – usually by an internal combustion engine of some sort.
The COVID-19 pandemic caused the oil price (North Sea Brent) to collapse to prices below $20 a barrel

Alviva

There is plenty of value for private investors on the JSE at the moment. The big institutions are focusing on the large blue-chip shares and ignoring the smaller companies, but some of those smaller companies offer really good opportunities. We think that Alviva (AVV) is worthy of your consideration.  
Alviva describes itself as,

Two interesting shares.

Warren Buffett has famously been quoted as saying “Be fearful when others are greedy and greedy when other are fearful”. Right now, investors are understandably fearful and for that reason there are some unusual opportunities in the market. The shares which would obviously benefit in the post-COVID-19 period have already moved – shares like Prosus and Sibanye. In fact, mining