Technical Tuesday

03 November 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) vs Sasol Ltd

Telkom SOC (SA) Ltd

Truworths International Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index has corrected from the short term high (49117) in to what appears to be a bullish flag formation (marked with blue parallel lines). This pattern marks a slow correction after a strong gain alluding to the momentum as remaining bullish. Short term gains have resumed in line with the long term uptrend and the recent high at 49117 is the initial target favoured, a break of which further favours a test of channel resistance at 49780.

A close below the short term low at 47600 would consider the failure of the flag formation, while a close below 47100 would see the uptrend in place reassessed. 

Click here to view South Africa 40 chart

Equities in focus

BHP Billiton PLC (SA) vs Sasol Ltd

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

Should one of these scenarios play out successfully the expectation would be for a net gain of 8%. A stop-loss would be considered equal to the anticipated gain of 8%.  

Click here to view the BHP vs Sasol chart

Telkom Soc SA Ltd

The share price of Telkom has formed a double top reversal pattern marked with the blue “M” shape. This pattern warns of a reversal in the price trend from up to down. The height of the pattern projected from the breakout level (6825) arrives at a proportionate downside target of 6340.

Should the price rebound and close above the resistance level at 7035, the bearish indication would be deemed to have failed.  

Click here to view the Telkom chart

Truworths International Ltd

After failing to reach range high resistance at 9730, Truworths International has formed a bearish price reversal circled blue (shooting star & bearish engulfing). The stochastic is currently moving out of overbought territory whilst showing a bearish divergence with the price (red lines on indicator and price). These are considered bearish indications in technical analysis and favour a short term decline in the share price of Truworths International. The initial support target is considered at 8575, a break of which further favours a move to the next level of support at 8575.

However, should the price renew gains and close above the short term high at 9600, the aforementioned bearish indications would be deemed to have failed. 

Click here to view the Truworths 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 03/11/2015

BHP vs Sasol chart

Source: ProRealTime charts, as of 3/11/2015

Telkom chart

Source: ProRealTime charts, as of 3/11/2015

Truworths chart

Source: ProRealTime charts, as of 3/11/2015

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