Technical Tuesday

1 December 2015

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:

Standard Bank Group Ltd vs Nedbank Group Ltd

Tiger Brands Ltd

Spur Corp Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index South Africa 40 cash index has continued the consolidation alluded to last week. An intraday break of the 46200 level failed to confirm with a close and in turn, a new short-term low extends the support of the range to 46090. Range traders might be tempted to accumulate at current levels using a downside breakout as a possible failure indication.

A close below 46090 would consider a downside breakout, in which case 45250 becomes the initial downside target and if broken 44200 is favoured further. This week finds a data heavy economic calendar and with that the potential for increased volatility. As always, caution should be considered as the nature of economic data being released is expected to produce pronounced moves in financial markets this week.

Click here to view South Africa 40 chart

Equities in focus

Standard Bank Group Ltd vs Nedbank Group Ltd

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

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 Standard Bank, short Nedbank.

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. Standard Bank rising and Nedbank falling
  2. Standard Bank rising faster than Nedbank rising
  3. Standard Bank falling slower than Nedbank falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.6%. A stop-loss would be considered equal to the anticipated gain of 3.6%.

Click here to view the Standard Bank vs Nedbank chart

Tiger Brands Ltd

After breaking out of a short-term consolidation the price of Tiger Brands is pulling back towards trend line support. The volume pattern shows rising volume on the breakout and last move up and declining volume on the price pullback. This shows a higher level of enthusiasm by market participants on the move up than on the move down, suggesting that the momentum for the share remains bullish even through the current short-term decline.

Trend followers might consider a move back to a confluence of horizontal and trend line support at 31350 an opportunity to accumulate in line with the long-term uptrend. Alternatively should the price reverse and close above the red trend line on the chart it could suggest a breakout and renewed gains to follow. In both situations the short-term high at 36000 becomes the favoured upside target, while a close below the low at 30400 would suggest the failure of the bullish indications. 

Click here to view the Tiger Brands chart

Spar Group Ltd

In last week’s newsletter the small triangle or pennant consolidation (highlighted red) was noted and we awaited a breakout in either direction. While an upside breakout was considered a possible opportunity for renewed gains, a downside breakout considered a move to channel support as a possible opportunity to accumulate into weakness.

The downside breakout did occur and the price looks to be reversing off the channel support line from oversold territory. A move to initial resistance at 19200 is now favoured, while a close below the low at 17800 would consider the failure of the anticipated rebound

Click here to view the Spar chart

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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IG provides an execution-only service. The material on this website does not contain (and should not be construed as containing) investment advice or an investment recommendation, or 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 the above information. Consequently any person acting on it does so entirely at his or her own risk. The research 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. This communication must not be reproduced or further distributed. The price levels provided are derived from ProRealtime Charts (IT-Finance)

South Africa 40 chart

Source: ProRealTime charts, as of 01/12/2015

Standard Bank vs Nedbank

Source: ProRealTime charts, as of 01/12/2015

Tiger Brands Ltd

Source: ProRealTime charts, as of 01/12/2015

Spar Group Ltd

Source: ProRealTime charts, as of 01/12/2015

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