South Africa 40 Cash Index price forecast: momentum slows at highs

South Africa 40 Cash Index – Indicator analysis

Guidance on the South Africa 40 Cash Index, in terms of indicator analysis, remains largely unchanged from the last few notes.

The 20 (red), 50 (green) and 200 (blue) day simple moving averages (MAs) continue to suggest that the short, medium- and longer-term trends for the South Africa 40 Cash Index are up, while the stochastic suggests that the price is still overbought at this stage.

In turn we continue to wait for a short-term pullback / correction from overbought territory for long entry, in line with the longer-term uptrend bias still in place. It should be noted that a correction from overbought territory could also be considered should the price move into a near term consolidation / range.

South Africa 40 Cash Index – price action analysis

The South Africa 40 Cash Index price has continued to stutter around all-time high territory. The grey shaded area on our chart highlights this move with small bodied green candles. It has taken three days of positive price action to only partially erase the preceding candle’s (red) weakness. This highlights a loss of momentum around current highs and furthers the suggestion of waiting for a price pullback/correction before looking for new long entries on the index.

The upward trend bias (highlighted by channel and moving averages) also suggests that looking to try pick tops and that taking contrarian ‘short’ positions carry an elevated degree of risk as they would be against the prevailing market direction.

Ideally, we would like to see a consolidation or price pullback before looking for long entry. In the event of a pullback or near-term correction we would look for evidence that a counter trend move is complete with a bullish price reversal i.e., a bullish candle pattern or tick back in price, before trying to get long on the index.

If a correction instead takes the form of a consolidation rather than pullback, we will look to highlight the support and resistance thereof and wait for a breakout before entering new positions.

A confluence of channel resistance (shaded red) as well as a 61.8% Fibonacci extension, provide a ‘longer’ term price target of 74600 for the local index.

Should a correction from overbought territory ensue, not end with a bullish price reversal, and instead move the price to close below the support low at 65680, only then would we look to reassess our long trend bias currently assumed on the South Africa 40 Cash Index.