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South Africa 40 Cash Index forecast: price action ahead of key macro data

In this article we look at different price action set ups for the South Africa 40 Cash Index ahead of a news heavy week.

Source: Bloomberg
Source: Bloomberg
Source: Bloomberg

The South Africa 40 Cash Index has now started to retrace off resistance at 74600 and from overbought territory.

As suggested in previous weeks, our preference has been to look for long entry into the pullback on a bullish price reversal closer to either the 71780 or 69520 support levels.

Shallow pullback & long entry criteria

The candle marked with the black arrow (hammer) does however provide the suggestion that a shallow pullback might have ended already.

For confirmation that we are in fact ending the pullback and resuming the longer-term uptrend we would like to see a positive close on today’s candle and ending above the open of the preceding candle. This would equate to a bullish engulfing pattern.

In this scenario, 74600 and 75250 provide our initial upside resistance targets, while a close below the (hammer) low at 73250 might be used as a stop loss consideration.

Deeper pullback scenario

Should we not get the bullish price reversal confirming today our expectation is for either a deeper pullback or sideways consolidatory environment.

Should a deeper pullback start to manifest we would not be looking to short the index, but rather wait for a bullish price reversal closer to either the 71780 or 69520 support levels for long entry.

In the event of a consolidation forming, we would wait for a breakout before assessing the next directional move.

News to watch out for

Today (Wednesday 1 February) does present a risk event in the form of a US rates decision and Federal Reserve commentary (8pm). This is followed by monetary policy decisions from the European Central Bank (ECB) and Bank of England (BOE) tomorrow (Thursday 2 February). Friday (3 February) sees US employment and Non-Farm Payroll data as further potential catalysts for market volatility.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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