In saying that we need to take account of the dip in economic growth we've seen coming out of China and the sustainability of that. Still there are large pockets of potential within China that remain untapped yet there seems to be a constant overshadowing of debt problems stemming from the massive drive in the growth rate. With the level of debt at these levels one does get the feeling that the Chinese consumer might be feeling the constraints and thus restrict spending. What's added further pressure to the commodities slump is mainland China's efforts to curb supply from abroad by opening inefficient operations within its own borders namely iron ore.
With that being said I wanted to focus on the resources sector in the South African context since our partnership with China is increasingly leaning towards a more dependent one.
The chart I want to focus on today is the JSE Resources 20 Index, which represents the 20 largest listed resource companies listed on the JSE. These companies range from diversified miners all the way to gold mining which has seen a tremendous downturn in prices from it's glory days.
The timeframe I'm using here is a Monthly over the last 10 years. The first thing we want to identify major support and resistance. We can pinpoint those to 45 000 and 60 000 respectively. We see that from 2010 the index has been range bound. What strikes my interest is during the first half of 2013 the level of the index fell below the 45 000 mark as indicated by the circle.
It seems as if a fight ensued between the bulls and the bears which resulted in high levels of volatility with the bulls as eventual winners driving the index back to 60 000. That would indicate some resistance on the part of the bulls to allow the level to go further than 45 000.
We are now approaching the all important support level of 45 000 once again and it will be interesting to see how the bulls will react. Two possibilities can happen. The first being the bulls being able to push the index up again thus reinforcing the range bound trading environment we have been experiencing or second, the bears gain sufficient strength to break deeply into bull territory so as to chase them off. If that were to happen we would likely see the index fall further to financial crisis levels of 30 000.
I see the second scenario as rather unlikely but in financial markets you can never write off any possibility. The way it stands right now I would be steering clear of resources stock for the moment to allow that possibilities to unfold themselves and once I have strong confirmation of the direction I'd begin to trade again.
The chart I want to focus on today is the JSE Resources 20 Index, which represents the 20 largest listed resource companies listed on the JSE. These companies range from diversified miners all the way to gold mining which has seen a tremendous downturn in prices from it's glory days.
The timeframe I'm using here is a Monthly over the last 10 years. The first thing we want to identify major support and resistance. We can pinpoint those to 45 000 and 60 000 respectively. We see that from 2010 the index has been range bound. What strikes my interest is during the first half of 2013 the level of the index fell below the 45 000 mark as indicated by the circle.
It seems as if a fight ensued between the bulls and the bears which resulted in high levels of volatility with the bulls as eventual winners driving the index back to 60 000. That would indicate some resistance on the part of the bulls to allow the level to go further than 45 000.
We are now approaching the all important support level of 45 000 once again and it will be interesting to see how the bulls will react. Two possibilities can happen. The first being the bulls being able to push the index up again thus reinforcing the range bound trading environment we have been experiencing or second, the bears gain sufficient strength to break deeply into bull territory so as to chase them off. If that were to happen we would likely see the index fall further to financial crisis levels of 30 000.
I see the second scenario as rather unlikely but in financial markets you can never write off any possibility. The way it stands right now I would be steering clear of resources stock for the moment to allow that possibilities to unfold themselves and once I have strong confirmation of the direction I'd begin to trade again.
No comments :
Post a Comment