Technical Tuesdays

10 February 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:

BHP Billiton PLC (SA)

Nedbank Group Ltd vs Old Mutual PLC (SA)

NewGold Issuer Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index has consolidated over the last week into a range, with short-term support and resistance considered at 45100 and 45925 respectively. The price is currently testing the resistance of this range.

Should the price manage to close above this level of resistance a short-term move towards 46500 is favoured. Should the price reverse off this level, range traders might look for long entry near support (45100) favouring a move back towards resistance.

A bullish bias remains favoured in both scenarios while the underlying trends remain positive (as alluded to in previous weeks). The long-term targets as per the weekly chart from last week remain at 47150 and 49840 respectively.

Source: ProRealTime charts, as of 10/02/2015

Equities to watch

BHP Billiton PLC (SA)

The price of BHP Billiton has broken out of an inverse head and shoulders pattern. The pattern alludes to the preceding downtrend starting to reverse into a near-term uptrend. 

An increase in volume has supported the breakout alluding to the sustainability of the upward move. The initial resistance target favoured is considered at 28100. 

The height of the pattern projected from the breakout level (25700) arrives at a further upside target of 30350. A price close below 24500 would consider the failure of the bullish indication.

Source: ProRealTime charts, as of  10/02/2015

Nedbank Group Ltd vs Old Mutual PLC (SA)

The chart considered is that of Nedbank (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 (Nedbank) has been underperforming security 2 (Old Mutual). 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 Nedbank, short Old Mutual 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. Nedbank rising and Old Mutual falling
  2. Nedbank rising faster than Old Mutual rising
  3. Nedbank falling slower than Old Mutual falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.7%. A stop-loss would be considered equal to the anticipated gain of 3.7%.

Source: ProRealTime charts, as of  10/02/2015

ETF to watch

NewGold Issuer Ltd

The price of NewGold Issuer has reversed off support at 13650. The Stochastic is displaying a positive divergence with the price (red lines on indicator and price) and is crossing out of oversold territory. 

These indications are considered bullish and a retest of recent resistance at 14375 is favoured. A price close below support at 13440 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  10/02/2015

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



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