Technical Tuesdays

3 June 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:

Shoprite Holdings Ltd vs Spar Group Ltd

Barloworld Ltd

Sasol Ltd

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The  South Africa 40 index has drifted lower over the last week finding support at 44 550. 

The green arrows on our chart highlight the long wicks underneath the bodies of the last few daily candles. These long wicks show that price weakness on the respective days has been rejected by market players, as the index has been bought back off the lows of each day to close nearer the high of each day. This suggests that the short-term directional bias remains up as does the long-term trend. 

With this in mind, trading with a long bias remains favoured over trading counter trend at this point. The previous resistance level at 45 050 is the favoured as the near-term target, a break of which favours a further move to channel resistance at 45 700. The price closing below support at 44 550 would consider the short-term bullish bias to have failed.

Source: ProRealTime charts, as of 03/06/2014

Equity in focus

Shoprite Holdings Ltd vs Spar Group Ltd

The chart considered is that of Shoprite (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 (Shoprite) has been underperforming security 2 ( Spar). 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 Shoprite Short Spar. 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. Shoprite rising and Spar falling
  2. Shoprite rising faster than Spar rising
  3. Shoprite falling slower than Spar falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.9%. A stop-loss would be considered equal to the anticipated gain of 3.9%.  

Source:  ProRealTime charts, as of 03/06/2014

Barloworld Ltd

The price of Barloworld has found support on the 200 day simple moving average (blue line) and looks to have formed a bullish price reversal.

The price finding support is coupled with a strong increase in volume, which suggests strong accumulation at this level. The Stochastic has crossed through its trigger line in oversold territory which is also considered bullish, further supporting the price and volume activity.

Resistance at 10760 is the favoured near-term target, while the price closing below 10 000 would suggest failure of the bullish indications.

Source:  ProRealTime charts, as of 03/06/2014

Sasol Ltd

The price of Sasol has confirmed an upside breakout from the flat top triangle formation (red lines) mentioned in the 20th May edition of the Technical Tuesday newsletter.

The height of the pattern projected from the breakout level at 60 000 predicts an upside target at 63 050. Aggressive breakout traders would have entered on the initial breakout, while more conservative breakout out traders would be looking for a pullback towards the 60 000 level for a long entry opportunity.

The price trading below the support of the triangle at 59 000 would consider the bullish indication mentioned to have failed.

Source:  ProRealTime charts, as of 03/06/2014

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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