Technical Tuesdays

04 March 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:

MTN Group Ltd vs Vodacom Group Ltd

Netcare Ltd

Spar Group Ltd vs Shoprite Holdings Ltd

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index closed marginally below the low of our range (red dotted line), only to close back above the level the next day.

The downside breakout of our range has failed, and the height of the range has now been extended to accommodate the new lows created over the week. Support of the range is now considered at 42200 with resistance remaining at 43100. The price is now testing the aforementioned resistance of the range, while the long-term trend remains up.

Trend followers and breakout traders would be waiting for the price to close above the 43100 level, with the next resistance target considered at 43500 (upper trend line from broadening formation). The height of the range (900 points) projected would provide a further target should a upside breakout occur at 44000.

Range traders would be weary of shorting off resistance in light of the long-term trend remaining up, but would  rather wait for a long entry should the price retrace off resistance.

 

Source: ProRealTime charts, as of 04/03/2014

Equity in focus

MTN vs Vodacom

The chart considered is that of MTN Group Ltd (candlestick) with a Relative Strength Comparison (RSC) indicator added.

The RSC 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 Group Ltd).

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

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.2%. A stop-loss would be considered equal to the anticipated gain of 3.2%.  

Source: ProRealTime charts, as of 04/03/2014

Netcare

The price of Netcare Ltd is currently in a sideways consolidation, the movement has taken the form of a triangle pattern.

The 2305 level marks the resistance which would need to be broken before a new uptrend is considered, while the 2220 level marks the support to be broken before a new downtrend is considered.

Should one of the aforementioned breakouts occur, a target from the pattern is derived from measuring the height of the pattern (2350 – 2120 = 230) and projecting that distance from the breakout level.

Source: ProRealTime charts, as of 04/03/2014

Spar vs Shoprite

The chart considered is that of Spar Group Ltd (candlestick) with a Relative Strength Comparison (RSC) indicator added.

The RSC 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 (Spar) has been underperforming security 2 (Shoprite Holdings Ltd).

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 Spar, short Shoprite.

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. Spar rising and Shoprite falling
  2. Spar rising faster than Shoprite rising
  3. Spar falling slower than Shoprite falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.4%. A stop-loss would be considered equal to the anticipated gain of 3.4%.

Source: ProRealTime charts, as of 04/03/2014

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

 

 

Try our platform

Follow one of the links below for a quick look at our web-based platform and the range of markets on offer.

Domestic account

  • Explore our platform with no login
  • Search for your favourite shares and open deal tickets
  • Access charts and technical analysis tools

International account

  • Explore our platform with no login
  • Search for your favourite shares and open deal tickets
  • Access charts and technical analysis tools

Open a demo

If you're interested in finding out more about the range of markets available and the functionality of our trading platform, you can open a demo account. 

Domestic account

  • Trade with R100,000 practice funds for two weeks
  • Access charts and view our range of local markets
  • Trade online or via our mobile apps

International account

  • Trade with £10,000 practice funds for two weeks
  • Access charts and view live prices
  • Trade online or via our mobile apps

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)

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.