The week ending 11 December 2015 will go down in SA’s history, as will the few days following.
The markets seemed to initially shrug off the Fitch downgrading (to just above junk status) and disappointing Current Account data, but after hours trading on Wednesday saw the Rand plunge to new lows, sparking extreme nervousness.
The last thing that was needed was some extra impetus or bad news.
But, of course, self-serving Zuma didn’t understand that, or if he did, he didn’t care (has he ever?)
The timing of his ‘epic fail’ – firing of Finance Minister Nene and replacing him with unknown yes-man David van Rooyen – couldn’t have been worse.
The result was a bloodbath – wiping billions off the JSE, sending bond rates souring and the Rand spiralling out of control – all the way to 16.05 against the Dollar (12% drop in a week), 17.62 against the Euro and 24.37 against the Pound.
Emotions were at an extreme of blind panic and despair – mixed with rage, prompting #ZumaMustFall and #ZumaMustFallMarch campaigns.
These are massive moves to behold. But we have seen them before – in 2001 and 2008.
As subscribers know, we had mooted a possible blowoff (in Elliott Wave terms, a 5th wave extension) in our forecasts on 16 November 2015, but had this at a 35% probability (see below).
Click to enlargeAnd just as it happened in 2001 and 2008, it happened this time too – this extreme point of trend coincided with extreme events and extreme emotions.
When all hope has been given up, the market has likely reached its terminus
... and a reversal is imminent.
And that is just what we saw on Monday.
Following news that Zuma had been forced to backtrack, with respected Pravin Gordhan back at the helm of National Treasury, the Rand immediately strengthened by 6%, with the JSE and bond markets also recovering.
It never ceases to amaze me to see the way the Elliott Wave Principle provides view of the future, not merely what market prices are expected to do, but how the market and persons are likely to be acting at this point in time.
So when a 5th wave blowoff is forecast, what this is also anticipating is that some shock event will be the trigger to push emotions to an absolute extreme – beyond the norm, as the trend reaches a terminus.
And, so often, this happens.
The reason for this is that, at these points of trend extremities, people tend to make extreme, irrational and emotionally charged decisions and actions, which is reflected in the market price action – which fuels the already hyped up crowd...until everyone has given up all hope.
And when that point is reached there is nobody left to turn negative – the trend has reached its end, and a reversal occurs.
And when that point is reached there is nobody left to turn negative – the trend has reached its end, and a reversal occurs.
The next few weeks will be very interesting to see what unfolds in the markets and in the political arena.
Finance Minister Gordhan has a tough task on his hands to repair the damage caused, and keep this country away from its fiscal cliff. A Rand that has likely completed (or is very close to completing) a multi-year weakening trend will certainly aid his cause.
I take this opportunity to wish you a well-earned rest and a healthy, successful 2016.
Looking forward to enhancing our service to you next year – watch this space.
As always, I would love to hear your comments and feedback - please leave a comment below.
To your success~
James Paynter
P.S. If you have Rand exposures, I can believe how stressed out you have been.
