UPDATE Shoprite short playing along nicely thanks to the rand

31 mag 2023

Since the last trade update, SHP has been on a strong trajectory down.

It formed a large Head and Shoulders on the daily chart which then the price broke below the neckline.

We had other indicators confirming downside including:

200>21>7 - Bearish
RSI<50

The target remains at R177.11

With fundamentals, I don't have much to say except the negative effect that the weakening rand could be putting pressure on Shoprite.

There are a couple of reasons for the price to drop when the ZAR gets weaker including:

Higher Import Costs

A weakening rand means it's worth less compared to other currencies.

If Shoprite imports goods from other countries, it would have to spend more rands to buy the same amount of goods.

This increase in costs could decrease profits, which in turn could cause the share price to drop if investors expect lower future profits.

Inflation Pressure:

A falling rand can lead to inflation as the cost of imported goods rise. Even the Finance Ghost just spent R70 on a Sausage Roll in Cape Town! That's crazy!

High inflation can erode consumers' purchasing power, potentially leading to a decrease in consumer spending.

Shoprite, as a major retailer, could be adversely affected by this trend, leading to a drop in its revenues and, consequently, its share price.


Economic Uncertainty:

Currency depreciation often reflects broader economic instability or uncertainty.

This can lead to decreased investor confidence not only in the rand but also in South African companies, including Shoprite.
This lower confidence can result in selling pressure on Shoprite shares, leading to a fall in its share price.