Isn't hindsight great? This weekly chart of IG Index's SA Top 40 clearly shows the breakdown in momentum around end July. This coincided with a wobble on Wall Street. But Wall Street was growing sensibly, not like the SA Top 40 which was clearly on crack as the ZAR weakened. I'm not sure if the weak Rand means that JSE prices must rise to compensate or if there are simply too many Rand hedge stocks that drive this action. Anyway, the SA Top 40 was clearly ready for a correction and when Wall Street wobbled again end September then the JSE bear jumped out the window. Note now that the SA Top 40 has hit the bottom bollinger and the 50 day moving average. So it's probably safe to get back in but keep it light.
The problem however is that we are still in a bull trend as evidenced by the medium term momentum line (red line) being positive still, although it is rushing to the zero line quite rapidly. If this bullish bounce doesn't last from here and we go south again (in a few weeks time) then I suspect it would be quite wise to head for the exits i.e. if medium term momentum turns south that would mean that the long term cash (pension funds etc.) are pulling out together with the short term momentum flows.
So this is a very crucial time in the market. This brief correction is a bit of a fake-out and will suck in the dumb money which usually represents the final stage of a long term bull run i.e. everyone piles in thinking the crash is over and all is well again. Then the hurricane hits. So while it's probably OK to bounce around sideways trading the markets for a few weeks now, we need to watch that medium term momentum line. When short and long term investors act together i.e. short and medium term momentum goes concurrent then you need to sit up and take action.
