Technical Tuesdays

01 April 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:

Naspers Ltd

Mondi Ltd vs Sappi Ltd

ArcelorMittal Ltd

View market data

Company data


Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index double bottom (blue “W”) from last week’s newsletter confirmed, and we have seen the price trade towards our initial all-time high target at 43400.

The projected target from the double bottom formation 43550 remains favoured with a further upside target now considered at 44100, should we move into new high territory. The new target is derived from the trend line which tracks the closing highs (black trend line).

The price trading below support at 42550 would indicate the current short-term run to have faltered, in which case we would reassess the near-term expectations.


Source: ProRealTime charts, as of 01/04/2014

Equity in focus

Naspers Ltd

The price of Naspers has broken out of a falling wedge formation (marked with red trend lines).

In the current context the wedge formation alludes to a cumbersome move down after a strong move up, suggesting that the momentum remains to the upside. The price continues to trade above the 200 day simple moving average (200MA) indicating that the long-term trend remains up.

The stochastic is moving out of oversold territory which is bullish, supporting the price action and in line with the long-term trend. Gap resistance between levels R1225 and R1275 provides the favoured initial resistance targets, which if broken favours further gains to the all-time high at R1350.

The price closing back into the wedge below support at R1130 would deem the bullish expectations to have failed.

Source: ProRealTime charts, as of 01/04/2014

Mondi Ltd vs Sappi Ltd

The chart considered is that of Mondi with a Relative Strength Comparison (RSC) indicator added. The RSC compares the price of one security with that of another in a ratio format. 

The RSC has experienced a decline in value recently which highlights that security 1 (Mondi) has been underperforming security 2 (Sappi). Bollinger Bands have been added to the RSC and highlight the underperformance of security 1 reaching abnormality relative to the usual relationship of the two securities.

It is expected that the relationship between the two securities will revert back to normality favouring a possible pair trade opportunity i.e. long Mondi, short Sappi. 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 securities in a number of ways:

  1. Mondi Ltd rising and Sappi falling
  2. Mondi Ltd rising faster than Sappi rising
  3. Mondi Ltd falling slower than Sappi falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.1%. A stop-loss would be considered equal to the anticipated gain of 5.1%.  

Source: ProRealTime charts, as of 01/04/2014

ArcelorMittal Ltd

The price of ArcelorMittal currently appears to be reversing off historical support at 3220. The price is also making lower lows, while our oscillator (Stochastic) is making higher lows (dotted blue lines).

This phenomenon is known as positive divergence and supports our oscillator crossing through its trigger line and out of oversold territory. These indications are considered short-term bullish, and a test of historical resistance at 3740 is favoured.

Should the price close below support at 3220, the price reversal and positive divergence signals would be considered to have failed. 

Source: ProRealTime charts, as of 01/04/2014

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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