As already suggested on 30th April, Wall Street e.g. the Dow Jones Industrial Average - is vulnerable to a big selloff to October 2002 lows or to near 6000. A mosaic of other indicators such as the Nasdaq Composite, US Treasury Bonds, the Nikkei, the German DAX and currencies are corroborating (see some of the charts posted at www.HugoCapital.com/ottawaradio/).

What about sunny South Africa, delightfully distracted by soccer world cup hosting in 2010? I heard a market commentator say on Friday that the soccer "feel good factor" would push the JSE higher next. Sorry, but although I am also pleased -- any euphoria will be short- lived unless world markets and the JSE suddenly do a miraculous healing and turnaround. 50 week and 100 week momentum has turned negative and the JSE Alsi 40 can rationally work another 13% lower to support at 7645 or if some irrational or Wall Street crash-inspired selling anxiety takes over -- the Alsi can fall another 24% back to support at October 2002 lows or below that, depending on global pressures.

Anglo at R127 is looking particularly worrying. Unless basing action and upward trend development builds above a key support at R135 soon, momentum swing counts and Gann time and price ranges suggest scope for R82 by August or October. Maybe a soft landing at R99.00 support though.

So we have been expecting and waiting for the broader market dip impacting on the JSE as a buying opportunity. Value and technical indicators have been saying for months that Wall Street gains since October 2002 are unsustainable. However the size of the selling in the US and the impact on US property and Treasury Bonds and the US$ may be a lot more serious than generally expected. A "softer " Wall Street may still be called a "crash " when the press decides the trend has turned.

Seriously though - once the blood on the streets from frightened sellers eases and momentum selling subsides -- and basing and turnaround upward momentum starts showing on the cockpit instruments ( technicals) -- there may be some excellent buying opportunities for JSE investors.

South Africa is well positioned with relatively low debt, modest growth, reasonably disciplined government spending, property prices booming, infrastructure development planned, Asia likely to still buy lots of our resources and likely to invest in the gateway to Southern Africa, a stronger Rand insulating against most inflationary pressures, lower or stable interest rates -- and government making reassuring noises about Rule of Law.

The better the fundamentals, the better the share price of South Africa Inc. - the Rand. In January I discussed the evidence for the Rand below 6.00 by the end of 2004. If that scenario is unfolding as wave counts and time and price relationships suggest is on track -- Anglo and others sensitive to export sales and a stronger Rand, such as golds, will battle. Short term pain, long term gain though. Only with a strong Rand can the rest of the world begin to speed up some decent investment inflows.

In the meantime before the JSE dip lows, depending on individual investment and risk strategy, get defensive. That means being proactive about protecting gains of last year and this year, making sure you have some cash to take advantage of the coming dip or sell-off lows. It means that money market switches for retirement savings and long term investments may in some cases be feasible and advisable. It means recently out of favour long short funds and hedge funds are going to make money on shorts again - for a while.

Get a financial adviser to give input on strategy -- one who understands the impact of market setbacks and practical steps available to get defensive.

The dips or falls won't last long -- if our bigger bullish view on South Africa's growth prospects and lower interest rates in the next few years confirms. But if the JSE tracks the West into discounting some stagnancy or recession for a few months before heading up again - it can hurt investment strategies built mainly around expectation of only minor pauses and minor setbacks in a continuing bull market.

What a pity it would be to miss a dip buying opportunity when it comes!

Golds - when out of favour - is the time to accumulate. Wait a bit for more evidence that a reversal or big up run is at hand. Cycles currently at 19 and about 30 weeks, are supportive -- as long as the R2530 area on the RGold price does not break down. A stronger Rand will soften the $Gold price run that is starting to look increasingly feasible. Traders are watching support at $372.30 carefully. Until JSE All Gold Index momentum evidence improves more - be careful - there may be more dip to come. The $Gold price back above $394 will turn disillusioned gold bugs into gold rush pioneers again.

Victor Hugo

www.HugoCapital.com
www.SAgolds.com
www.GoldSignals.com

17 May 2004