Real Estate Investor Magazine South Africa REIM February 2018 | Page 59

CURRENCY
And because we tend to react the same way in similar cir-
cumstances, these patterns of human emotion recur. Over
and over again. Hence, there is some predictability to this
irrational human behaviour!
This is, in essence, the Elliott Wave Principle - the dis-
covery of the laws that govern human behaviour in financial
markets.
And once you understand this, you will forget about
looking at what events have caused the Rand’s move...or
how future events will impact the Rand’s direction - and
instead simply focus on where current market sentiment
patterns are telling us where the market is likely to head.
And that’s exactly what we did prior to the 3 big events
highlighted in the chart of the Rand history, the first being
Zuma’s surprise Cabinet Reshuffle on 17 October.
we updated this outlook, keeping our eyes focused exclu-
sively on what the sentiment patterns were telling us.
While economists and everyone else were instead focus-
ing on the likely effects of credit rating decision (and with
a downgrade almost a given, everyone we know was pre-
dicting the Rand would take pounding in the weeks ahead).
But our analysis painted a very different picture, as
shown in Figure 4 below.
This showed that the Rand, which was at 13.82 at that
stage, was likely to head sharply stronger against the Dollar
over the coming weeks to target the 13.32 to 12.97 area,
with an imminent bounce off support first.
The process
Three weeks prior to this, on 20 September (with the Rand
at 13.32), we had updated our outlook for the next few
weeks, predicting a move up above 14.11. We had no idea
what triggers would send it there - all we knew was that the
sentiment patterns were calling for a move higher.
Figure 4. USDZAR Near Ter m Forecast - 22 Nov 2017
Very much a contrarian view.
Figure 2. USDZAR Near Term Forecast - 20 Sep 2017
And, in line with the forecast, the Rand duly pushed high-
er in zigzag fashion over the next few weeks, with Zuma’s
surprise decision being just the trigger that the market was
looking for to push it into our target area.
And then, on 10 November 2017, when the Rand had
hit 14.37, our analysis indicated the market was expected to
top out and fall sharply below 13.90.
Figure 3. USDZAR Near Term Forecast - 10 Nov 2017
And what happened?
It topped the next trading day and dropped sharply below
13.90 over the next couple of weeks as anticipated.
And finally, on 22 November 2017, just 2 days before the
ratings agency were expected to announce their decisions,
But, as can be seen from Figure 1, that’s almost exactly
how the market played out, with the Rand initially weak-
ening to 14.15 in anticipation of Junk Status announce-
ment, and then reversing sharply on the news, against all
mainstream expectations!
And then, in line with our forecast, it continued to gain
steadily against the Dollar the next four weeks to hit the
expected minimum target area of 13.32 to 12.97.
Right in the middle of the ANC elections.
Fascinating stuff (I must confess, this model’s ability to
predict still amazes me).
But this is a classic example of how looking at the right
information (market patterns of sentiment) - and ignoring
news and events - can give you clarity and improve your
decision-making ability.
Where to go from here
So, have you been hurt by unexpected moves to date?
If so, perhaps it is time to stop looking for reasons why
the market has moved - after the fact (when it is too late
to take advantage - or avoid the damage)?
And instead start looking ahead to where sentiment is
likely to move the market - irrespective of events (allow-
ing you to make objective decisions and take action at the
right time)?
So now, the question is that the Rand has touched new
2½ year lows, is this overdone? What can be expected for
2018?
Based on our forecasting model, a bounce is imminent,
partially retracing the Rand’s recent gains, but the larger
degree Rand-positive trend has still some way to go. You
will know it is finally running out of steam when there is
no-one left to turn Rand positive.
For more info on the Rand and the way forward from
here, go here: www.forexforecasts.co.za/go/weeklyre-
view
To your success and beyond
SA Real Estate Investor Magazine FEBRUARY 2018
57