Capitec

Management issued a trading updating expressing intentions of reducing gearing levels. Since then the company reduced its debt levels by an average of 33.5% with the significant portion of that debt reduction coming from the period ending June 2021. The company reported net borrowing reduction of R35.2 billion and brought back dividends. It’s important to note that management achieved this without ever diluting shareholders. .

The stock never saw a daily close above R240 until the close on 21 September 2021 (ex-div) with a bullish engulfing candle. The market gapping down on ex-div but recovering all the dividend amount and then some. Closing at R240.24. Since the breakout from the long base. I’m expecting a fair bit of dancing around between R240 – R245. I’m also expecting the market to remember the R268 level

Above R240 the odds of the stock going back to the R430 highs are pretty good.

I’ve been buying on the up since R163.

Daily chart

With the market closing through R240 by a few cents with a bullish engulfing candle. Adding another purchase of the stock to the portfolio keeping my stop loss at arms Length at R209.42. Expecting the market to remember the R240 level selling off a bit. Once the stock is above R245.80 I will raise stop loss to R225

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Can Sasol go back to its former glory at highs of around R630. Well let’s look at the possibilities and the risk of finding out if it can.

The area between R200 – R240 has strong support and an area of strong memory. The market defended that level from 2005. Until the COVID-19 crash of March 2020 cracked it open. The stock dropped almost 90% in a couple of months. Not being another Steinhoff the stock has since recovered that entire fall and back around the strong area of memory. The Market remembered this level again. The fall from grace wasn’t an unwarranted one. Elevated debt levels to fund what proved to be a disaster for the company. The company reduced the debt quite significantly as reported in the year end June 2021 financials. Oil prices and a weak rand saved the company from a rights issue

Let’s look at what’s been happening the past year since the March lows.

The stock formed a nice long base with an ascending triangle pattern. In the process breaking back above the 50 week EMA. It came back to test it after remembering the R240 level and holding quite well. With a longer term stop just below the 50 week EMA around R190 Targeting the R650 level presents a brilliant 1:7.6 risk:reward.

Zooming to the daily chart

The stock broke the R240 level and ran into some selling at R250 since April 2021, but the stock held both the 50 & 200 day EMAs. The market remembered the R250 level again testing it on 16 September 2021. If we can close above the April 2019 close The doji that proved to be the undoing of the rally would then confirm the trade

The vaccination roll out is a good thing for Dis-chem. The slower the roll out the better because it means more foot traffic into the Dis-Chem. South Africans coming in for a vaccination and some picking up a snack or two and items at the stores on the way out. Moreover even those who aren’t picking up anything are more exposed to the products in the store. This is essentially free advertising for Dis-chem. Notwithstanding tough competition from Clicks. The company has been growing earnings since listing until lockdowns came around. Given the above I’m anticipating earning to recover back above the 2019 comparable period.

Looking at the charts

The stock had a strong run since the 2020 lows, doubling within the period. We had then had a golden cross as the stock looked to retrace and test the old resistance around R27. The R27- R29 eraa is a great buy area. With a tight stop around R25-26 just below the support line. The odds are much better back above the R32 resistance for a short term target challenging the 2018 R40 highs.

Zooming a bit closer

The stock lost its will to rise post the dividend. Subsequently slipping below the 50 day EMA at the back of the founding. We have to wait to see how the 200 day EMA defends the price. If the 200 day EMA holds as support, and monitoring price action around the 200 day EMA. The R27 level is a good place to start building the position. And increasing the position when the stock is back above R32.50. It’s the first time since the golden cross that the stock takes a shot at the 200 day EMA. The likelihood of the moving average holding is pretty good.

Triple screen

Monthly chart

We had a bullish divergence pattern as the stock held the 200 month EMA. A bullish divergence is a classing reversal pattern. The stock has since formed a base with what is starting to look like a cup and handle pattern. Another reliable classic chart pattern. The neckline of the cup and handle pattern is around the 50 month EMA. The stock broke the downtrend resistance level, came back to test it and is holding it well at the moment as support. If the stock can close through the R160 neckline and above the 50 month EMA. The odds of the stock moving back higher back to the R335 highs increase. With a long term stop loss around R120 and a long term target of R313. WIth patience it’s a good 1:4 risk:reward ratio.

Weekly chart

The stock currently forming the handle finding a tug of war around the 50 week EMA. With more green weeks than red ones. Signaling that more battles are won by buyers. If the stock closes below R130 it would seem sellers are winning the war. However, with a close above R160 that would signal that buyers are winning the war. If the stock closes through R160 it would be closing the 200 week EMA as well. Improve the risk:reward.

Daily chart.

We recently had a golden cross showing that indeed buyers are a bit stronger than sellers albeit not by very much. At the moment the status of this stock is waiting on the sidelines waiting for the R160 breakout. With an initial wide stop around R130 or R140 if being slightly aggressive with the stop loss.

Looking at the company

Unfortunately the company fell short of the input cost sweet spot (R2200 – R 2450) stated in the interim results. The average cost for yellow maize was around R3397, a 33% miss.

The good news is yellow maize is a cyclical commodity and prices are starting to slide off. Breaking a long term trendline. I’m anticipating a further decline in maize.

Food retailers are reporting good numbers at the back of South Africa’s version of the stimulus cheques. The Covid-19 grant usually ends up in the food retailers to which they are well positioned to benefit from that. The recent strike doesn’t help the company one bit. I’m anticipating a recovery to input dropping as maize prices decrease. The company should recover profitability. We will see the impact of the recent strike. Despite a tough period the company nonetheless declared an interim dividend.

With the stock being in a low base having broken the long term down trendline the risk reward is quite enticing, keeping a tight stop loss around R130 and waiting for a R160 breakout.

The status for Astral foods remains waiting for a break above R160. Below R160 the risk outweighs the reward.