Technical Tuesday

11 August 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:

Nedbank Group Ltd vs Old Mutual PLC

PSG Group Ltd

Peregrine Holdings Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index pulled back to support at 46450 before forming a bullish candle formation circled blue. The bullish formation implies the end of the short-term pullback and the possibility of gains to follow.

The initial resistance target remains at 47540, while a close below 46300 (recent low 46303) remains the failure level for the current short term bullish consideration.  Should the move fail, medium term support at 45180 is the initial downside target considered.

Click here to view South Africa 40 chart

Equities in focus

Nedbank Group Ltd vs Old Mutual Plc

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 6.1%. A stop-loss would be considered equal to the anticipated gain of 6.1%.  

Click here to view the Nedbank vs Old Mutual chart

PSG Group Ltd

PSG has broken out of a triangle consolidation and looks to be renewing the uptrend which had preceded the consolidation. The height of the pattern projected from the breakout level arrives at a proportionate upside target of 23170. Conservative break out traders might prefer to wait for a pullback towards the breakout level at 19700 before looking for long entry. A close below triangle support at 18540 would consider the failure of the bullish move expected. 

Click here to view the PSG Group chart

Peregrine Holdings Ltd

The short-term share price decline from Peregrine’s recent high looks to have taken the form of a bullish flag formation (parallel red lines). The pattern alludes to a slow move down following an aggressive move up, suggesting that the underlying momentum remains bullish. The preceding trend up was supported by increased volume, while the consolidation down was accompanied by relatively low volume.

This volume pattern supports the price action in that the enthusiasm looks to be on the buy side rather than the sell side. To confirm the pattern as being “in play” the price would need to close above flag resistance at 3275. In this scenario a move to the recent high at 3440 is favoured as the initial upside target, while a close below 3150 would consider the failure of the bullish indications. 

 Click here to view the Peregrine 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 11/08/2015

Nedbank vs Old Mutual

Source: ProRealTime charts, as of 11/08/2015

PSG Group Ltd

Source: ProRealTime charts, as of 11/08/2015

Peregrine chart

Source: ProRealTime charts, as of 11/08/2015

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