After a relatively quiet week and with the World Cup nearing its end, trading volumes will hopefully start to pick up. We have been fairly inactive on the portfolios and the only trades we have placed in the last few weeks have been a long Naspers and a long Lonmin, which both appear to be oversold on technical levels.
Trying to find any stocks to buy or sell at the moment is difficult, with the low volumes messing up most pricing models. Volume is a key ingredient to trading and when the volumes are low, you really don’t want to play because the moves are never with much conviction and the spreads are wide.
The last few weeks have also been punctuated with pretty bad economic data out of the Eurozone, United States and China, which has had some talking heads mulling over the idea of a double-dip recession. If one has to look at the charts, I must say, the technical picture for equities and the indexes looks pretty terrible.
But decent valuations and healthy earnings remain positive for the market, and all eyes will be on this week with the start of the US earnings season. One also has to ask how much is already in the price of this recent pullback.
Although we like having a bias to the short side, I’m tempted to position the trading to the long side on the presumption that some of the earnings will be better than expected. You get the sense that the market is looking for some good news, and in the next week things will be a lot clearer. If not, then the market will probably grind lower into the next quarter. And you know how I feel about the slow grind — things are tough enough at the moment.
Well, here’s to a week ahead with some much overdue clarity.
Nick Kunze is head of dealing at BJM Private Client Services