Technical Tuesdays

2 December 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:

MTN Group Ltd vs Vodacom Group Ltd

Sappi Ltd

Mediclinic International Ltd

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 cash index continued to pullback after finding resistance at the 45390 level, breaking below the trend line support guided at 44300 as well as horizontal support at 43750. The trend line from last week has now been removed from the chart, as it is considered to be no longer valid.

The loss of momentum in the uptrend alludes to the inverse head and shoulders pattern no longer being relevant and it has therefore been removed from the chart as well. The price experienced an intraday bullish reversal after reaching a short-term low at 42340. Tuesday witnesses the intraday price reversal continuing and the two days combined (circled red) have formed a bullish engulfing candle pattern.

The horizontal level at 43750 is considered a pivotal point at present as we struggle to confirm clear trend direction. The bullish engulfing, if confirmed with a close above 43750, considers a retest of resistance at 45390. Should the price not manage to hold above the 43750 level a retest of the recent low at 42340 is considered.

Source: ProRealTime charts, as of 2/12/2014

Equities to watch

MTN Group Ltd vs Vodacom Group Ltd

The chart considered is that of MTN (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 (MTN) has been underperforming security 2 (Vodacom). 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 MTN, short Vodacom.

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. MTN  rising and Vodacom
  2. MTN rising faster than Vodacom
  3. MTN falling slower than Vodacom

Should one of these scenarios play out successfully the expectation would be for a net gain of 9%. A stop-loss would be considered equal to the anticipated gain of 9%.

Source: ProRealTime charts, as of  2/12/2014

Sappi Ltd 

The price of Sappi has been trading in a sideways medium-term range and looks to have found support at 4045, the lower end of this range. The price has also found support on the long-term gauge of trend the 200 day simple moving average (blue line).

At this level of support, we see the stochastic oscillator crossing through its trigger line in oversold territory. These are considered bullish indications in technical analysis and a move towards resistance at 4350 is favoured, a break of which further favours the next level of resistance at 4500.

A price close below the next level of support at 3920 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  2/12/2014

Mediclinic International Ltd 

The price of Mediclinic has formed a falling wedge (shaded grey) which was preceded by an uptrend. The wedge suggests a weak move down after a strong move up in the current context, alluding to the momentum remaining bullish.

The stochastic is moving out of oversold territory as the price finds support on the wedge formation. These indications are considered short term bullish favouring a move towards resistance at 9680, a break of which further favours the next level of resistance at 10000.

A price close below the short term low at 9000 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  2/12/2014

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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