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The Weekly JSE Pulse lists everything you need to know about the health and expected returns of the JSE at this point in time, together with various market timing signals. Catch the start of every bull run, see how much oomph is left in the market and never be caught in a JSE crash again! 

UPDATED ON : MONDAY 23rd NOVEMBER 2009. DATA AS AT FRIDAY 20th NOVEMBER.
NOTE : For larger, higher resolution versions of all charts on WJP, download Fridays JBAR report.

1. GENERAL OVERVIEW : LONG TERM:BULLISH | MEDIUM TERM :BEARISH | SHORT TERM :BEARISH |
With the McClellan Summation Index (MCSI) on a definite downward trend and SwissClock exiting the market, we can expect mute and volatile JSE returns for the short to medium term. This means more troughs which as always present opportunity to stock up your favourite shares at bargain prices and a delight for the SwingTraders. The persistant MCSI divergence coupled with the BPI divergence (see latest post in Dave's Diary) promises a meaningful consolidation ahead. We also witnessed the birth of a rare AD-line divergence.

Yet market drops remain small and subsequent peaks still post higher highs. This is frustrating for the longer term  investors since a nice meaningful correction is required to allow us to take up lower-risk long term positions on quality issues. As ever, in a strong bull market divergences can sometimes persist for what seems forever before the floor eventually gives in. We can identify mounting risk but we can't peg the date! Our style is risk averse and we already have plenty of quality bluechips in our SUPERModel strategy we have picked up in the troughs along the way so we are happy to sit out further investments while the market keeps rising, as our exiting stock will keep rising with it. But this is little consolation for many new subscribers who are itching to get into the market and hear us telling them to pull the handbrake while the market keeps roaring ahead.

Long-term  (1-3 years) we are still bullish on this market cycle due to 3 green flags showing from our SUPERModel timing system and our only advise in these times is this : "If you are going to buy, then buy on the troughs, and buy quality and value as opposed to speculative overpriced issues, for when the eventual correction arrives the latter will suffer the most."

U.S MARKETS FRIDAY CLOSE :
The S&P500 also seems to be rolling over for another correction. Major divergences are also appearing on the US markets for various indicators. Whether this is just another minor correction as we have been seeing in the past or the one that defines all the divergences we are seeing is anyones guess. Valuations are high and so are the risks. This does not always prevent the market to keep going up but the mounting risks are undeniable. It is incredible how, after a major correction everyone looks back and comments "But this was so obvious - just look at all the indicators" yet before the correction things appear "less obvious"!

MARKET TIMING SUMMARY
SUPERModel  : 80% VESTED, BULLISH (weaker stocks trimmed for looming correction)
SwissClock    : OUT THE MARKET, WAITING FOR NEXT ENTRY
BPI              : OUT THE MARKET, WAITING FOR NEXT ENTRY
SwingTrader : OUT THE MARKET,
WAITING FOR TROUGH KATE

2. The PowerStocks SWISSClock Medium-Term Market Timer
A set of mechanical trading rules we have developed utilising the McClellan breadth indicators to derive a highly accurate and profitable short/medium term signalling system for market tops and bottoms with 4-8 month investment time horizons.

PROGNOSIS : SELL. On Monday 9th November we finally bid farewell to SCLX#22 one of the longest SwissClock signals in 12 years (221 days) for a 23.9% return and 41.6% CAGR. As much as we wanted to hang on a little longer to see Joaquin through (it would have added 2% to gains) we were bound by our mechanical rules to exit all our medium term positions. This strategy has a nose for trouble and is just so darn reliable we offloaded without thinking twice. Fortunately for us the JSE took a fillip on Monday which meant we sold into strength which was a small consolidation for saying our fond goodbyes. But SwissClocks' name is not by accident and sure as day turns to night within 3-4 months it will be presenting us with another profitable BUY signal.

3. The PowerStocks SUPERModel Composite Market Timing System
Our flagship JSE long-term investment market timing models. A combination of a Monetary Model, a Momentum Model, and an Economic Cycle Model. Version 2.0 now includes Adaptive Seasonality logic that doubled performance from 113,863% growth since 1978 to just over 200,000%. Signal accuracy of 85% and never got caught in a single bear market. NOTE : New features on dashboard recently introduced are the SwissClock and Seasonality icons as well as the Stock Market Cycle icon.

PROGNOSIS : LONG TERM BUY. Things are long-term bullish. We have all 3 sub-component timing models firing a BUY signal. There will be inevitable consolidations, even up to 10% but trend is definately up for next 12-24 months. Note SUPERModel-II signal has raised from +2 to +3 to reflect a strong seasonal strength. As tempting as it is to correlate this rise in the signal to the latest run on the JSE this must not be interpreted as a short term buy signal as we are in a high risk period of possible consolidation/correction due to SwissClock having left the building (see stopwatch with red cross through it) and trough Kate beginning to form. We are 182 days into the I-signal with a 22.7% return (50.7% CAGR). The II-signal is on a whopping 46.5% return or 71.6% CAGR after 258 days in the market. Note that many subscribers play this model on the "-1" (neutral) signal line as opposed to our model portfolio that plays it on the "0" line (ours is more conservative as you can see it bailed in August 2006, the more aggressive strategy held out until September 2007)

Sections 3.1, 3.2 and 3.3 below cover the individual timing components (excluding seasonality) that make up the SUPERModel Composite Timing Signal.

3.1 PowerStocks Repo Rate Monetary Policy Timing Indicator (MPI)

PROGNOSIS : LONG TERM BUY Monetary conditions still favourable for stock market returns but not to the extent we have been used to since 12 December 2008, as the rate cuts slowly fade out of the MPI reading over time. Just look how closely this indicator and the JSE track each other, it is rather remarkable that each time a point expires the JSE seems to fall - showing how well the PowerStocks Labs calibrations over 32 years when creating this indicator is working. You can see why this timing system of ours is favoured by many short term as well as long term investors. On 10th February 2010 if there has not been another interest rate cut by the MPC we will be down to +1 which means this timing system will be reaching its sunset days.

This timing model was the first to fire a BUY signal and has shown a 26.5% gain in last 331 days on the ALSI (29.4% CAGR) Contributes 1 vote to the SUPERModel if > 0, with a bonus vote if Econometrix model also flashing a BUY signal and another bonus vote if MPI reaches 6 or more. With MPI in the 2-1 range, we forecast JSE rate of returns to be half those we have been used to recently based on our 31-year backtests on JSE returns during various MPI scores.

3.2 PowerStocks TRENDEX Bull Market Indicator for the JSE

PROGNOSIS : LONG TERM BUY. TARGET DATE FOR REACHING ZERO LINE = 17-24TH DECEMBER
Strong and rare long term buy signal. We are 180 days into this signal and Trendex continues its upward advance, showing the acceleration in the last 14 weeks that is characteristic of bull market beginnings (note increasing spaces between the yellow dots showing daily readings). This line needs to swing through zero to confirm a new long-term (secular) bull market although ironically the bull markets' first big breather normally occurs around this time casting this wisdom in doubt! (look on left chart when last the signal hit zero.) At the current trajectory we estimate the Trendex signal to strike zero around  17-24th December which we believe to be (if you forced us to peg a date but anything is possible) "around" the date the JSE will reach its final peak before the big consolidation (this date ties up with others we have mentioned.) This model was the second to fire a BUY signal (ninth signal in last 31 years) generated on 20 May 2009 (exactly 12 months after the JSE peak) and has shown a gain of 18.7% (42% CAGR) since then. Contributes 2 votes to the SUPERModel due to signal rarity and long term historical accuracy.

3.3 PowerStocks Econometrix Economic Cycle Market Timing System

PROGNOSIS : BUY Everything set for medium-to-long term gains on the JSE. Composite index YOY rate of change oscillator has passed through -10% which is the official Econometrix Timing Model BUY signal. The Econometrix model is the last model to trigger a BUY signal (it is normally the laggard among all the models). This timing strategy has been vested in the JSE 90 days for a 12.4% return, or 59.8% CAGR. Contributes 1 vote to the SUPERModel but if synchronous with a declining interest rate environment, generate a bonus signal to the MPI.

As the LEI is leading, it normaly troughs 6-8 months ahead of the economy. We note from the co-incident economic indicator (see below) from SARB that the economy indeed bottomed in June and the LEI troughed 4 months before. It took us 2 months to confirm the trough, hence we entered the JSE 2 months before the economy troughed. Currently the co-incident is sitting at -13.5% YOY change and we believe will have returned to positive YOY change in December. This can only be confirmed when we get Decembers' reading in March 2010 though.



Note how the JSE peaked and troughed exactly 6 months before the co-incident peaked and troughed! We exited the last signal 8 months early and entered this signal 4 months late. This was just bad luck as on previous occasions in the 31 year backtests we got a lot closer, but this just highlights that timing is art and science! Given the trade cycles with Econometrix are multi year, these 4-5 month "inaccuracies" with the timing become insignificant when the whole trade is viewed. Bernard Baruch made his fortune "selling to early" and nobody went broke getting into the market 4 months after the trough of a major crash! In either case, you missed the major crash and THATS what turbo-charges the Econometrix strategies returns to 55,000% in last 31 years versus the ALSH buy-and-holds meagre 7,800% return.

Note these charts are only updated on the 27-29th of each month and represents monthly data as at 26th of each month. The LEI and YOY ROC represent data two months prior to the date they are published by the Reserve Bank. The co-incident indicator represents data three months prior to the date on which it is published.  Last updated on 27th October 2009.

4. JSE ALSH MARKET BREADTH INDICATORS (EXCLUSIVE TO POWERSTOCKS)
This section comprises all the JSE market-breadth indicators we maintain for SA investors. Breadth indicators look at the characteristics of the underlying shares of the JSE to determine its overall health, strength and direction as opposed to looking at the index itself. Even the most sophisticated and expensive charting packages you can buy do not calculate this information for the JSE, yet it is the most critical information used by the pro's overseas to time the markets and avoid crashes.

NOTE : To view images that the text refers to, go and download Fridays' JBAR available from the link at the very top of this page
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4.1 PowerStocks JSE ALSH McClennan Oscillator & Summation Index (JBAR Chart Set 1)

OBSERVATION : BEARISH. The McClellan Oscillator (MCOS) is clearly camped in a downward channel as market breadth weakens and failed to make a peak above the zero line as we predicted in Wednesdays JBAR report. The MCOS should form another hill-structure below zero which is going to accelerate the MCSI decline. The Summation Index (MCSI) is also following a clear downward trend and has been showing an important bearish divergence with the JSE which is sure to spell trouble in the near future. More shares are declining than advancing and more money is chasing fewer and fewer shares to keep the market propped up. MCSI has broken through the 80-day moving average (we call this the Martin Pring line) which is a clear medium term SELL signal.

4.2 JSE Advance/Decline Line and Ratios (JBAR Chart Set 2)

OBSERVATION : Look at Chart 2a - birth of a rare AD-Line Divergence! This will be a first for many of you (except those subscribers with us before the last crash). The AD-Line failed to make a new high with the JSE - a clear sign of a weakening market. Note how the Advance/Decline ratio steadily declined from the initial breadth thrust that defined trough Joaquin and also how the Decline/Advance ratio steadily rose toward peak Joaquin. Very soon we should see our first TroughFinder A-signal for Kate.Chart set 2b clearly shows the downward breadth thrusts that created some of the TroughFinder A-signals. Nothing else to observe at this stage.

4.3 Up-Volume/Down-Volume JSE Ratios (JBAR Chart Set 3)

OBSERVATION :  We have a saying that "volume makes the JSE go around." Without up-volume the markets cannot rise. Again, as with the advance/decline data, the initial up-volume thrust that turned Joaquin up has steadily declined since her peak. On the right chart you can see clearly the TroughFinder A-signal ignited by that huge 6:1 down-volume to up-volume "panic sell". You can see that large volume "panic spikes" greater than 4:1 are very reliable markers for ground-zero of troughs. They serve as good early entry signals before TroughFinder coughs up a B or C signal but remember you will always be safer trading once the first batch of buyers has rushed in, since if the trough is more serious it is defined by many panic thrusts and you could land up catching the proverbial falling knife! So early entry = higher reward, but higher risk! More on volume in section 4.4.

4.4 Buying Demand and Selling Pressure (JBAR Chart Set 4)

OBSERVATION : BEARISH. These charts were ignored in favour of the new goodies we have been rolling out of late but our love affair with volume has been re-ignited when the folks at PowerStocks Labs rejuvenated them with those new thresholds they have calibrated. You can read up about them in the updated "How to use JBAR" page. But new fangled thresholds apart, these are oldies but goodies. These charts provided perfect warning of Peak Ida as the buying demand fell rapidly accompanied by rising selling pressure, even as the JSE was rising to form Peak Ida.  What we call a classic demand divergence shown by the shaded red box on the left chart. We see up-volume driving Joaquin from trough to peak, faltering just before the main peak and then falling again. The white line on left chart clearly shows the buying demand trend and changes in direction here are good clues to the markets direction.  As trough Kate forms, expect to see demand drop off further accompanied by rising selling pressure on the right chart. 

The new "early trade entry" calibration lines are to assist us with confirmation of peak and trough identification. If green bars go below "Minor Trough Line" or red bars strike through the "Panic Line" then the probabilities are good we are witnessing ground zero of a trough. If red bars sink under the "Reversal line" then chances are you're seeing buyers flooding back after a sell-off. Red bars striking through "panic line" followed a few days later by them sinking under the "reversal line" are excellent trough reversal signals. So good in fact we are looking to incorporate into TroughFinders' C-signal.


4.5 PowerStocks BPI and ABI Charts (JBAR Chart Set 6)

OBSERVATION : BEARISH. The BPI has dropped dramatically in trough Joaquin but did not manage to recover very much on her peak, providing another instance of divergence where the BPI is failing to make new highs with the JSE. This is a very significant warning on underlying market weakness and depicts that the JSE is starting to "roll over" or go through a top-forming process. If  Kate is another mild trough it will surely pull BPI down to the mid to lower 30's, and when Larry rolls into town its going to dive into oversold territory and our BPI timing model will awaken from hibernation.

The ABI came through solid (again) showing just how reliable it is for detecting local peak forming activity. It is a classic breadth indicator and an invaluable part of PeakFinder-I, and we have extolled its multi-purpose virtues in the updated HOW-TO for JBAR and we encourage you to read it and understand more about it.

4.6 PowerStocks PeakFinder and TroughFinder Charts (JBAR Chart Set 5)

OBSERVATION : PeakFinder-I delivered its second solid production performance. We will keep tweaking it. We've combined the SwingTrader signals into one bar and have included a new bar for background divergences. The red bar is unused but no doubt the Labs will find a use for it that will benefit us all! TroughFinder lagged PTO and STO for Joaquin since the B-signal was tardy in arriving. We will take note of PTO and STO next time they are signalling troughs and TroughFinder is still asleep...yet TroughFinder is well tested, PTO and STO are newer entities. Still, acting on PTO would have yielded a 10% better gain so far for  SwingTrade Joaquin and clearly there is room for improvement here. Note the height of the red bars - the formation of Joaquin was more intense than anything we have seen since June and yet its trough-to-peak rise was much smaller than Danny or Ida. Possibly another sign of weakness to keep an eye on. We await patiently for TroughFinder to ignite another red A-signal for us soon, possibly early nex week.

4.7 SWINGTRADER : PowerStocks Trading Oscillator & Swenlin Trading Oscillator(JBAR Chart Set 7)

OBSERVATION : POETRY IN MOTION
 . The more sensitised PTO nailed the last 3 troughs and peaks superbly - hopefully we have got rid of that irritating post-peaking SELL signal that eroded returns. The lab folks inform us we will need to constantly calibrate PTO to fit with the current trend-cycle of the market. As usual, Swenlin called the trough well-enough but did its usual chickening out stunt as the peak approached. Its still a good phased component of SwingTrader-I as it forces you to lock in some profit which is not a bad thing. For more detail on the behaviour of these indicators go and read the post-mortem for SwingTrade Joaquin. Now another observation. PTO is based on a divergence between the ALSH and the Advance/Decline-Line (AD Line Disparity Index.) Now look at the left chart - see that left-to-right downward sloping channel defining the PTO signal peaks and troughs? It means the ALSH is outpacing the AD-Line (forming a bearish disparity). This has more recently become visually apparent, as we have noted with the red divergence line in Chart set 1a.

4. JSE SEASONALITY INDICATOR

Prognosis BULLISH. The JSE gained 435 points in August, or 1.75% which is way under its traditional average gain of 4.2%. September is traditionally the 2nd poorest month for the JSE but it gained  99 points, or 0.4%, way over its traditional average, but anemic nonetheless. For October the JSE is up 1,394 pts or 5.58%, way over its 10-year average of 0.9% and its 20-year average of 1.5%. This just goes to show, as we pointed out in our JSE Seasonality research paper that during recoveries from major crashes seasonality adherence sometimes goes out the window for up to 6 months after the trough. For November, the JSE is up 568 points or 2.15% so far - above average for the month.

We still maintain seasonality will be back with a vengeance in mid November and December and we are hoping to get some really good TroughFinder signals before then. Note the SUPERModel timing system has raised its signal by +1 to reflect strong seasonality effects but due to the current consolidation cycle, and significant bearish divergences we are witnessing we only expect this to kick in mid November or even December. A good trough in mid or even late November followed by stong seasonality in December would result in a turbo charged Christmas. But after that its another story.

5. TREND-LINE ANALYSIS FOR JSE ALSH INDEX

PROGNOSIS : Last week we put the odds at 45% for a breakout, 30% for a decline and 25% for a sideways move. Sure enough we had a lovely breakout. For Joaquin, the JSE bounced off its major support line to define trough and peaked off its major resistance line. Peaking activity seems to coincide with hitting the upper Bollinger Band lines as well. These are good visual cues to combine with the SwingTrader indicators when deciding to buy or sell but be warned they work better in hindsight than when you are sitting there faced with the "hard right edge". We suspect Kate will be defined around the 26,300 to 26,400 mark (1.9-2.0% pullback) if she is a minor consolidation and around the 25,500 mark (5.3% correction) if she is a bit of a bigger storm. If she is the hurricane we are all waiting for the level is 24,400 ( a 10% correction.)

6. POWERSTOCKS MARKETGAUGE

OBSERVATION : LONG TERM BULLISH Note that we have downgraded the MarketGuage as valuations are no longer at historical lows given the markets' recent gains and sentiment indices worldwide are no longer bearish. This week we downgraded again as PE expansion is no longer as robust as in the last 6 months. However there is a lot of money sitting on the sidelines internationally and in SA and recent gains coupled with more positive corporate earnings being announced internationaly may yield a short term bull market as risk appetite increases and money tries to find a home with higher yields. More than likely a sizeable correction of 10% is needed to really bring the buyers into the market.

7. SPECIAL SITUATIONS REPORT (SSR):
These are rare events that have proven statistically to yield good short term returns (or avoid major losses) if immediately acted upon. About 15-25 arise per year. When these events occur they are posted here. Whilst we document weekly alerts here on WJP, daily alerts are posted to the HeadsUP(tm) Alerts Blog

SPECIAL SITUATION #1 : We have very important bearish divergences between the MCSI and the JSE and the BPI and the JSE. We have just witnessed the birth of an AD-Line divergence. These divergences virtually guarantee some major 10-15% consolidation or muted sideways JSE in the near future. Either with trough Kate or Larry. More likely trough Larry. See latest post in Dave's Diary.

SPECIAL SITUATION #2 :
We are in a SwingTrader RED ZONE. Stay the hell out of the market unless you are selling.

SPECIAL SITUATION #3 :  SWISSCLOCK has left the building.


DISCLAIMER : Quantitative analysis is a windsock and not a crystal ball. No indicator or past history can guarantee future returns. Our use of these systems is merely to reduce your trade-risk and stack the odds in your favour based on probabilities or various outcomes depicted by our research and historical backtests. Please ensure you read our disclaimers before acting on information on this page. We accept no responsibility for the accuracy of information on this page nor for any outcomes arising from you acting on this information. This page is for informational purposes only and does not construe financial advice.

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