JSE: 13,000 Points Later and 25% Lower - Strategies Utilized To Avoid The Downside. #Technical #Fundamental #Quantamental

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From both a social and economic perspective, the new year and new decade has gotten off to a very rocky start, with the Covid-19/Coronavirus health crisis currently unraveling day-by-day bringing to a standstill major economic activity across the globe. From the disruption of supply chains in China, the ban on travel from major cities to another, to the hoarding of essentials household goods, the impact on economic activity and business may be felt for many years to come. With the social effects being exposed as developments unfold, the economic impact comes on the back of a decade-long equity bull markets which some have described as one of the most hated in history, perhaps due to the fact that it has been driven by record interest rates which have driven stocks to multiples above their long term averages. With the levels at which equity markets traded at, many market participant correctly positioned themselves for a fall while others saw major indices continuing to truck along to new highs. This was specifically true for the US market which has been the leader and driving force with sentiment persistently at a high, with the 'Buy-The-Dip' mantra being ever present throughout the years. The consensus expectation globally was that when US markets stopped performing, the baton would be handed over to markets that have lagged however, with the health (virus) crisis having descended upon us, stock markets have taken a hit across the board as with traditional valuations being ignored as the market and algos keep hitting the sell button amid the panic. Digging in my toolbox, sticking to my risk management process and using my technical experience, my review and observation of the chart of the JSE Top 40 Index allowed me to recognize the potential risks and avoid a 25% or 13000 point fall in the index since 20-January-2020. Our view has always been that Technical Analysis and Strategies are a risk management tool, and NOT a predictive tool.

Ref: Research Comment on 20 January 2020: "Indices | JSE Top 40 J200 | The current technical setup is reminiscent of the August 2018 period where we saw the index break to the upside a bullish flag formation, producing a 5% move on the break. At current levels, the price is around 4.6% above the breakout level, with a slight overshoot and test of the resistance trend line going back to November 2017. We are also 9.3% (or 4400 points) up from the 4-December-2019 lows. Keeping an open mind for a potential retracement." 

Chart On 20 January 2020 at 52702 points



 Updated Chart as at Friday 13 March 2020 at the close of trade (at 39476 points):
By employing technical strategies as part of a wider range of tools (including Fundamental and Quantamental), traders, investors and fund managers have the ability to not only protect themselves and their clients on the downside, but also use it as a tool to generate alpha in a rising and falling market.  

If you are interested in making non-traditional and unconventional Technical Analysis a part of your toolbox, drop me a massage today or comment in this post.

Regards
Lester Davids

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