Technical Tuesdays

21 January 2014

Our weekly technical report is compiled by in-house market analyst Shaun Murison.

In the report this week we look at the South Africa 40 index, key indicators as well as the following equities:

New gold vs Anglogold

Mediclinic

Aspen

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The SA40 index traded directly to the favoured resistance target from last week’s newsletter at 42100.

The bullish flag pattern remains in play and projects a further target at 44250. The target is derived by measuring the height of the trend preceding the consolidation (red line) and projecting the distance from the breakout area.

Circled in blue is what resembles a possible short-term reversal candle pattern known as a shooting star. Should the intraday reversal confirm at the close of the session, the previous closing high at 41700 would be a possible near-term downside target.

A short-term pullback however, would not negate the favored target projected from the flag but provide a possible opportunity to join the long-term uptrend. Should the extent of a pullback (should it occur) extend beyond our support level at 40475 the possibility of a trend reversal beginning would be considered.

Technical pair

Newgold vs Anglogold

The chart considered is that of Newgold (candlestick), with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in a ratio format.  The RSC has recently experienced a decline in value which highlights that security 1 (Newgold) has been underperforming security 2 (Anglogold).

Bollinger Bands have been added to the RSC. The RSC is below the lower Bollinger Band, which highlights the underperformance of security 1 reaching more than two standard deviations from the average 20-day relationship (red line on RSC) of the two securities. It is expected that the relationship between the two securities will revert back to this average, favouring a possible pair trade opportunity i.e. Long Newgold, Short Anglogold.

The target from the technical indications would be for the RSC to move back towards the 20MA (red line) which is regarded as the mean. This could occur with the price movements of the two securities in a number of ways:

1. Newgold rising and Anglogold falling

2. Newgold rising faster than Anglogold rising

3. Newgold falling slower than Anglogold falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 10%, which is the approximate distance from the current RSC value to the mean or 20MA. A stoploss would be considered equal to the anticipated gain of 10%. 

Equity in focus

Mediclinic

The price of Mediclinic has experienced a bullish price reversal near the support of the current trading range labelled on the chart.

Low volume on the recent decline followed by a spike in volume near support suggests capitulation in the weakness, and adds merit to the price reversal. The Stochastic oscillator is crossing through its trigger line in oversold territory whilst displaying a positive divergence with the price (red lines on lows of price and Stochastic). Positive divergence occurs when the lows of the price are rising while the lows on an indicator are falling.

These indications are considered bullish in technical analysis terms and a move towards initial resistance at 7350 is favoured, a break of which would consider further gains towards recent highs around 7725. The price closing below support at 6925 would render the aforemention indications to have failed.

Aspen

The price of Aspen has experienced a bullish price reversal near the support of the current trading range, labelled on the chart.

The Stochastic oscillator is crossing through its trigger line in oversold territory whilst displaying a positive divergence with the price (red lines on lows of price and Stochastic). Positive divergence occurs when the lows of the price are rising while the lows on an indicator are falling.

These indications are considered bullish in technical analysis terms and are in line with the long term uptrend. A move towards initial resistance at 27200 is favoured while the price closing below support at 24950 would render the aforementioned indications to have failed.

Market overview

A Technical Analysis overview of key indicators and sectors with regards to trend, volatility and overbought/oversold conditions.

Click to view this week's market overview

 

 

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