South Africa 40 Cash Index price forecast: reversal failed, overbought conditions persist

South Africa 40 Cash Index

The negative divergence signal on the South Africa 40 Cash Index highlighted in the previous note has failed in predicting short term decline. Traders who were short on the signal might have been stopped out, while traders waiting for the close below 67580 for short confirmation would not have entered the trade.

The price of the index is now finding resistance at the 69760 level and continues to trade in overbought territory.

The longer-term trend for the index remains sideways and still suggests a range trading environment in which long or shorts may be considered depending on circumstance.

For long entry traders might look for a break of the 69760 level to confirm with a close above, before targeting a move towards 71125, whilst using a close below 68970 as a stop loss indication. The overbought signal does however caution this scenario.

Traders looking for new short positions, might prefer to see a price close below the 68970 level to show some momentum to the bearish reversal currently forming off the 69760 level. In this scenario, a close above 69760 might be used as a stop loss indication, while targeting a move towards the 67580-support level.

Cash adjustment expected

Traders will note that the South Africa 40 Cash Index is expected to adjust for a dividend in the underlying estimated at 23 points on Tuesday the 28th of November 2023.

South Africa 40 Cash Index (previous)

The South Africa 40 Cash Index has produced an upside break of the 65100 to 66450 range following our last note. However, the speed and size of the move higher provided little opportunity for long entry as it closed at the 7580-resistance target.

The price has since found further resistance at the 68970 level and started to reverse while showing a negative divergence with the stochastic indicator. The divergence is highlighted with the dotted red lines on the chart, which shows higher highs on the South Africa 40 Cash Index price relative to lower highs on the stochastic oscillator.

The negative divergence signal off resistance and from overbought territory suggests some downside to follow. Traders who are short, might target a move back towards the 66450-support level, while using a close above resistance at 68970 as a stop loss consideration for the trade. Traders looking for extra confirmation before entering new short positions might prefer to first see a close below the 67580 level.

No cash adjustment expected

Traders will note that the South Africa 40 Cash Index is not expected to adjust for a dividend in the underlying this week (commencing 20 November 2023).