When to invest in the JSE when the market falls?

When to invest in the JSE when the market falls?

After a spectacular run on the JSE since February this year, the market has turned very jittery. The 5% correction has turned into a 10% correction in weeks and it is impossible to know where the fall will stop. The decline is not driven by any big new issue. In general there are 3 big factors:

  1. Valuations were stretched because share prices ran ahead of earnings growth.
  2. The penny is finally dropping for investors that earnings cannot escape weakening global economic growth.
  3. Continued geopolitical events.

In fact nothing new, just a reality check. The Bull market is still technically intact and we are not in a bear market … yet, in any case. Investopedia defines a Bear market as a 20% drop, but most market analysts use 15% as the trigger level.

JSE All Share Index Year to Date:

JSE Oct 2014

We do have a serious downtrend with lower and lower lows and lower and lower highs than the previous high and low. The million dollar question now is, when do I enter the market or buy? The first indication of an end to the downtrend will be a higher high and a higher low, pretty simple. The previous high on the JSE All Share Index was that little high at 47,687 yesterday on October 14. Until the JSE makes at least a new high it is wise to sit tight.

A higher high and a higher low is only the first indication that the market can turn around, the conservative investor will wait for more confirmation that the downtrend has broken. Technical analysts will also look at other patterns like a Head & Shoulder forming, but that takes some time to complete. Oscillators like MACD and Stochastics give quicker signals. (You can read our Learning Centre modules on technical analysis if you register as an iView client on www.SanlamiTrade.co.za. The first month is free and only R200 per year thereafter.)

Should I sell now? That is an even more difficult question. Personally I think we are still in a correction in a primary bull market, so I am sitting tight.

-Gerhard Lampen.

Head Online Trading, Sanlam Private Wealth

*Disclaimer: Nothing in this piece should be construed as advice to buy or sell.

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