The JSE defied gravity and even the notorious Cabinet Reshuffle, rising 10% from December 2016 to May. That was in the face of lower economic growth figures and a deteriorating political landscape. Over the last few days the JSE All Share Index slid 3% in quick fashion, close to the support trendline. The support might hold and then we will have to see if a new high is made above 54,550 points. If not it will test the support line again.

The MACD has shown divergence over the last month when the Index made a new high in May, but the MACD did not follow to make a new high. It has now broken the Moving Average as well, indicating a correction is quite possible.

MACD

In 2016 the JSE had an even stronger rally, rising 17% from January to May and then ran out of steam. The subsequent correction led to a decline of 8.5% to December 2016. It was indeed true to the “Sell in May and go away” saying.

With little good economic news forecast for the foreseeable future and the ratings downgrade by Moody’s looming, a correction might well be on the cards. The market’s hopes of a quick resolution to end President Zuma’s reign are also fading every time he wins support from his ANC comrades. You can wait for the JSE Index to break the trendline, currently at about 52,700. Then it is maybe prudent to take some profits and wait for a 5% to 8% correction.

Gerhard Lampen

Head, Sanlam iTrade Online

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