What a Week! What Now?

3 September 2015

Wow, what a week and half it has been!

We said the Rand was at a critical juncture in my last post, and so it was.

But it wasn’t just the Rand market that was at critical junctures – it was the whole global market.

Pandemonium and panic abounded early last week, as increasing concerns about the Chinese economy and a collapse of the Chinese stock market to new multi-year lows triggered sharp selloffs in equity markets globally.

The Rand was caught up in the cold draught, breaking strongly through R13 to the Dollar to touch 13.67 early on Monday before retracing back down to test the R13 level over the following days.

What is happening here? And where does this leave us?

Well, to start off with the global scene.

The party from 2009 to 2015 is officially over. And it’s time to fasten the seatbelts.

The Chart below of the Dow Jones Industrial Index shows clearly how the market has broken below the lower channel support line which has contained the market since the 2009 low, signalling a clear change in trend has commenced.

Click to enlarge
How far will this go?

Despite having risen above the 2007 high, our analysis still depicts this as a corrective move off the 2009 low, which means a complete retracement of this move, plus some! A break below the 2007 high of 14198.10 would be the initial signal, which would be validated with a break below 12876.

So not a good outlook - it looks like the bubble has finally burst!

And on the Rand?

Well, we had said it has been at an extreme of pattern and sentiment. It is now even more so.

Significantly, with last week’s move, the market has tested a resistance cluster, as shown in the YouTube clip.

Click here for enlarged image of above chart
Using Elliott Wave, Fibonacci ratios and trendline analysis, we have some major resistance at these levels:

• The market has traced out a clear 5 waves from the low of 2011 [C]. In terms of Elliott Wave Principle, once 5 waves are complete a 3-wave counter trend can be expected back into the price territory of wave 4 (i.e. below 11.3890).
• And as we can see, this move since 2011 has been contained within parallel lines, with the high of last Monday having spiked through this line (called an overthrow) before being rejected.
• If we draw a line through point [B] that is parallel to the long term support line at the lows over the past 35 years, we get a resistance level around 13.3500
• If we draw a line through point [B] that is parallel to the long term support line at the lows over the past 35 years, we get a resistance level around 13.3500
• Using Fibonacci ratios, if we take the move from the low in the 1970s to the 2001 high (at ‘A’) and project a 61.8% of this move from the Dec 2004 low gives us a price target of 13.7498
• And a 38.2% extension of Wave [B] (from Dec 2004 low to Oct 2008 high) gives us a price target of 13.8911
• And then, of course we have the all-time Dec 2001 high of 13.8500.

There are several other ratios and projections that also converge in the 13.30 to 14.00 area, and this area is now key to market direction over the next weeks and months.

With a clear 5 wave pattern from the 2011 low and ideal price targets having been achieved (and exceeded), plus having entered a multiple resistance cluster, the market is at an extreme and primed for a reversal.

But that said, as we have seen with the stock markets, we can be at an extreme for some time before the reversal occurs.

The danger is a successful break above this zone, which would be suggestive of the 5th wave which commenced May 2014 itself being extended, which would mean a rapid rise before a spectacular capitulation (ala late 2001-style).

So, in summary - the Rand is oversold and primed for reversal, but it could get worse before it gets better...

At times like this, our emotions tend to take over, and we end up making irrational, panic decisions, instead of informed, educated ones – and getting really hurt in the process.



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To your success~

James Paynter

P.S. It is at times like this that we need to be careful of making irrational emotional decisions. Here's your chance to try out our service risk-free. And if you have any questions, feel free to post or comment below, or contact us...