Sasol - Chronicling The Calls

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The following is a re-post from my research group:
Key Points:
  • Identified Long Term Technical Risk (@ R433) While Fundamentals Were Sound 
  • Avoided Multi-Year Decline
  • Oil Price War – Failed To Recognize New Leg Lower
Just over three weeks ago in a note titled, ‘5 Shares To Add To A Long Term Equity Portfolio’, with the oil major was included as one of the shares to be added to a diversified portfolio. While I have managed to avoid the share over the last number of years, the most recent anticipation that the price had the potential reverse it’s downward trend has proved me wrong, but before we take a look at the final leg lower, let’s start from the beginning.

Over the last number of years (on the way up), Sasol has been a stock that I have managed to steer clear of, mainly because at the time and because of my inexperience and because I felt that the stock and it’s potential price movement were too complex to understand. As time progressed and my technical ability improved with my eye becoming much sharper, I was able to identify the long term technical (share price) risk. Many of you reading know that I occasionally publish my views on Twitter. These are often long term charts which take a skyscraper view of stocks and which often ignore the fundamental story. That being said it’s important to note that I am not against fundamental analysis as I believe that combination of fundamentals and technicals often lead to incredible insights which can help generate alpha and manage risk for investors.

 I believe that full transparency is key thus I have decided to chronicle my full multi-year Sasol call, from the beautiful to the downright ugly. The following charts and comments highlight these:

Comment with chart on 12 November 2018

Sasol ADR Monthly, $33.42

– Triple Top: May ’08, April ’11 & July 14
– Since declining from $60, the share has developed a bear flag pattern.
– Recently we have seen the price being rejected at the upper boundary of the channel (flag).
– Bear flag break targets $21 over LT.

Current Sasol ADR Chart

https://www.tradingview.com/x/APmtgqxD/

Comment with chart on 14 November 2018. Price at the time: R433.

Sasol: 50-month MA has been in upward trend since Aug 2001, now turning down. 486 is the multi-year pivot & the September 2005 incline must hold.

Comment with chart on 22 May 2019. Price @ 385 

Sasol Update: Down sharply on LCCP concerns. September 2005 technical incline support currently being threatened. Multi-year head & shoulder formation remains visible.

Comment with chart on 17 May 2019: 

Sasol at Risk
ADR Monthly, now $30.47
  • Triple Top: May ’08, April ’11 & July 14
  • Since declining from $60, the share has developed a ‘bear flag pattern’.
  • Price being rejected at the upper boundary of the channel (flag).
  • 3 Year incline support now being threatened
https://www.tradingview.com/x/APmtgqxD/
Before the Saudi’s decided to flood the market with oil which subsequently led to a 30% decline on Monday morning, Sasol was a profitable business with a larger than average debt pile. Post the start of the oil war, the group is most likely loss-making with balance sheet strain and possibly in need of a rights issue. Amid the recent market decline, the other stocks in the group has help up relatively well and continues to be defensive plays however Sasol has seen a drop down to R27.

Initially my anticipation was that the R125 would offer an opportunity to accumulate however the Saudi/Russia scuffle saw the price slice through the trend line support.

Chart on 1 March 2020

12-March 2020

20 March 2020 Close

https://tvc-invdn-com.akamaized.net/data/tvc_3204048e30e537bb6a9052b90a22dbaf.png

Whilst I am immensely proud of the work I have done on Sasol over the last few years, from recognizing the long term technical risk when the share traded at R433, I am equally as disappointed that I was not able to recognize the risk that the share was headed for a new leg lower. 

 To anyone that acted on the Sasol idea and took a loss on the back of the trade note, I apologize for not having the foresight to recognize and anticipate another leg lower followed by an even sharper decline.

Regards
Lester Davids

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