Technical Tuesday

2 June 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:

MMI Holdings Ltd vs RMI Holdings

Foschini Group vs Truworths International Ltd

USD/ZAR

South Africa 40 index

Technical view

The South Africa 40 cash index closed below the lower level of trend line support (red arrow) and continued its decline to the 45585 level guided. The 45350 level provides a confluence of both horizontal support and the level of the 200 day simple moving average (200MA).

The stochastic has moved deep into oversold territory, the lowest level the indicator has been this year. This suggests that the move down may be capitulating and a short-term rebound is possible.

Should a rebound occur the upside resistance target considered in 46500. Should the price not hold at current support and close below 45350 a relatively quick move back down to 44450 is favoured.

 

Source: ProRealTime charts, as of 02/06/2015

Equities in focus

MMI Holdings Ltd vs RMI Holdings

The chart considered is that of MMI (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) 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 (MMI) has been underperforming security 2 ( RMI). 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 to normality favouring a possible pair trade opportunity i.e. long MMI, short RMI. 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. MMI rising and RMI falling
  2. MMI rising faster than RMI rising
  3. MMI falling slower than RMI falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 4%. A stop-loss would be considered equal to the anticipated gain of 4%.  

Source: ProRealTime charts, as of 02/06/2015

Foschini Group vs Truworths International Ltd

The chart considered is that of Foschini (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) 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 (Foschini) has been underperforming security 2 ( Truworths). 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 to normality favouring a possible pair trade opportunity i.e. long Foschini, short Truworths. 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. Foschini rising and Truworths falling
  2. Foschini rising faster than Truworths rising
  3. Foschini falling slower than Truworths falling

Should one of these scenarios play out successfully the expectation would be for a net gain of4.4%. A stop-loss would be considered equal to the anticipated gain of 4.4%.

Source:  ProRealTime charts, as of  02/06/2015

USD/ZAR

The rand looks to have resumed its weakening trend against the dollar following a breakout from the triangle consolidation (shaded red). The short-term trend now aligns itself with the long-term.

The recent high at R12.50/$ is the initial upside target a break of which further favours a move to R13.20/$. The latter target is derived from projecting the height of the triangle consolidation from the breakout level.

Should the rand however start to strengthen and close below R11.75/$, the short-term weakening implications would be deemed to have failed.

Source:  ProRealTime charts, as of  02/06/2015

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

 

 

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)

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