JSE is oversold and due for correction – Analyst

The South African equities market, as represented by the Johannesburg Stock Exchange (JSE), has had a strong start to the year with an 8% increase in the first quarter. However, according to Peet Serfontein, Director at Phoenix Investment Analytics, the market may be overbought and due for a correction in the coming months. Using technical indicators like the Relative Strength Index (RSI), Serfontein points out that the JSE is currently in overbought territory, indicating a potential downside correction. This assessment is further supported by the fact that the market is trading above the upper two standard deviations, a confirmation of the overextended nature of the market. Serfontein explains that historically, from January to April, the market sees strong performances followed by a period of consolidation before a possible correction in June. He highlights April as traditionally the best performing month of the year. However, with elections on the horizon, the outcome could introduce further uncertainty and potentially lead to market retreats. The weakening trend of the South African Rand against the US dollar also adds another layer of complexity to the market dynamics, with the rent potentially moving towards 12 to the dollar. Serfontein warns investors to exercise caution and wait for potential market corrections before making significant investment decisions. In terms of international markets, the S&P is nearing record territory, but Serfontein suggests that it may be entering overbought levels, with possible downside risks in the coming months. He emphasizes the importance of understanding market cycles and historical performances to make informed investment decisions. When it comes to specific sectors on the JSE, Serfontein notes a shift from resources to industrials and financials, indicating a possible rotation in market leadership. Gold prices have been driven by global uncertainties, but Serfontein predicts underperformance in the coming months before a potential rally in August. Similarly, oil prices are expected to climb towards $77 to $80 a barrel, but caution is advised as the market approaches overbought levels. Overall, Serfontein's analysis underscores the need for patience and strategic positioning in navigating the complex and evolving market landscape.