ARTICLES

Correction

On the 10^th of July 2024, we tweeted (on “X”) that “...some sort of correction is looking more and more likely.” Four trading days later on the 16th of July 2024, The S&P500 index reached its highest point (5667.2) and began that correction. So far, the S&P has fallen 8,5%. Consider the chart:

The correction has included two “dead cat bounces” and two “exhaustion gaps” and it has gone further than the previous correction in March/April which only saw the index fall 5,5%.

So now the question is, “Has it reached its lowest point, or will it fall further?”

To begin with, it is our view that this is definitely a correction within a long-term bull trend – and not the start of a new bear trend. So, we fully expect that after this correction has run its course, the S&P will recover and go on to make further record highs.

Following the cycle low (4967.23) of the 19^th of April 2024, after the previous correction, the S&P entered an upward trend which was characterised by unusually strong bullish sentiment. The sentiment was so strong that the two “corrections” in that upward trend were flattened out by enthusiastic, mostly inexperienced, investors “buying the dip”. The two exhaustion gaps in the current downward trend show that many of those inexperienced investors have now been flushed out of the market after taking heavy losses.

Despite that, considerable bullish sentiment appears to remain present in the market. In the five trading days following the low point on 5^th August 2024, the market has again moved up strongly, indicating that there is still considerable belief that the great bull market will resume.

This correction came about ostensibly because of a rash of negative sentiment about the state of the US economy. But the reality is that the S&P had risen too far, too fast and was overdue for some sort of downward trend. The poor manufacturing data and the weak non-farm jobs report in July gave this position some credence.

The consequent flurry of profit-taking caught many of the less-experienced investors by surprise, causing some panic selling, especially on Monday the 5^th of August, when the index fell by 3% in a single trading day.

It is notable that the JSE Overall index (J203) has fallen by less than half of the fall in the S&P500, indicating that local investors did not and do not regard the downward trend on Wall Street as particularly serious or persistent. When considering this, you should remember that our market is well supported by overseas investors during periods when sentiment is generally “risk-on”. Consider the chart:

You can see here that the JSE Overall index, although volatile, has been in an upward trend since its low point of 63264 made on the 29^th of September 2022 and that it recently made a new all-time record high at 82765 on the 31^st of July 2024. The upward trendline is well supported by two touch points on the 26^th of October 2023 and the 18^th of March 2024. We fully expect that upward trend to continue.

In our view, this sell-off on the US market represents a potential buying opportunity.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Stefanutti Stocks

The construction industry is a high-risk industry from an investment perspective. Its fortunes are dependent on winning profitable contracts, usually from government or quasi-government organisations like state-owned enterprises (SOE). Projects often take years to complete and involve significant capital outlays. This makes their cash-flow management

Bitcoin's Collapse

We have said previously that cryptocurrencies like Bitcoin cannot be assessed using fundamental analysis – because they have no fundamentals. They have no balance sheet or income statement, and they generate no income for investors. For this reason, they can only be assessed technically - by looking at the charts.

Speculative Opportunity

PDSnet is mainly concerned with teaching private investors about investment and medium to long-term opportunities on the JSE. The foundation of this approach is that South African tax law treats any gain on a share held for longer than 3 years as a capital gain. In other words, holding a share for more than 3 years means that the investor will not be treated as

Scary Government Debt

Just like a household or an individual, a country’s government goes into debt because it spends more than it receives in taxes and other revenue. The important difference, of course, is that governments (unlike households or individuals) can actually create money out of nothing to finance their deficit if they choose to. This is known as quantitative easing (Q/E).

WeBuyCars - Follow-up

WeBuyCars (WBC) was spun out of Transaction Capital (TCP) and separately listed on the JSE on 11^th April 2024 – just over three months ago. Before the listing we published an article on the 8th of April 2024, in which we suggested that the share would be a solid blue-chip

Bell Equipment

We are often asked what prompts us to add a share to the Winning Shares List. The answer is that it is a variety of factors – but usually because the share appears to be very cheap in relation to its fundamentals. In other words, we expect it to be upwardly re-rated as its fundamental value becomes recognised by the institutional fund managers. A

JSE All Time Record High

On Friday last week, the 12th of July 2024, the JSE Overall index closed at 81686 – an all-time record high. Consider the chart:

The chart shows that the Overall

Construction

The entire construction industry was decimated by the 2008 sub-prime crisis, the ANC under Jaco Zuma’s presidency and then finally by the pandemic in 2020. Hundreds of thousands of jobs were lost and massive companies like M&R were reduced to penny stocks on the JSE.

The JSE Construction and Materials Index (JS5011)

Murray & Roberts

A company’s debt is critical in establishing the risk inherent when investing in its shares. High debt levels expose the company to high interest and capital payments and can swallow up a large part of whatever profits it makes. Low debt levels give the company the headroom to invest in further growth either organically

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost