Technical Tuesdays

06 May 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:

Barclays Africa Group vs Nedbank

Wilson Bayly Holmes-Ovcon vs Murray & Roberts

Harmony

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

South Africa 40 index has once again entered into a short term trading range between levels 43500 (support) and 44100 (resistance).

Range traders would look to accumulate near support and distribute near resistance with a close above or below these levels as a possible exit. Breakout traders would look for a close above or below the aforementioned range for entry in the same direction as the breakout, with a target considered equal to the height of the range (44100 – 43500 = 600 points).

The long term trend remains up as the price trades above the 200 day simple moving average (blue line labelled 200MA).The red trend lines continue to highlight a rising wedge which warns of a possible price correction. It is with this reason that long or short trades are considered relative to the breakout and range trade opportunities alluded to above.

 

Source: ProRealTime charts, as of 06/05/2014

Equity in focus

BARCLAYS AFRICA GROUP VS NEDBANK 

The chart considered is that of Barclays Africa (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 (Barclays Africa) has been underperforming security 2 (Nedbank). 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 Barclays Africa, Short Nedbank. 

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. Barclays Africa rising and Nedbank falling
  2. Barclays Africa rising faster than Nedbank rising
  3. Barclays Africa falling slower than Nedbank falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.75%. 

Source: ProRealTime charts, as of 06/05/2014

Wilson Bayly Holmes-Ovcon (WBHO) vs Murray & Roberts

The chart considered is that of WBHO (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 (WBHO) has been underperforming security 2 (Murray & Roberts).

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 WBHO, Short Murray & Roberts.

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. WBHO rising and Murray & Roberts falling
  2. WBHO rising faster than Murray & Roberts rising
  3. WBHO falling slower than Murray & Roberts falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 5%. A stop-loss would be considered equal to the anticipated gain of 5%. 

Source: ProRealTime charts, as of 06/05/2014

Harmony Gold Mining 

The price of Harmony has formed a double bottom formation which is marked with the blue “W”. The pattern is considered a reversal pattern as it warns of the preceding downtrend reversing into a near term uptrend. The height of the pattern (dotted vertical line) projected from the breakout level (3525) arrives at a proportionate target of 3940. 

Should the price pull back towards the breakout level it could afford a long entry opportunity for breakout traders who missed the initial entry opportunity.

Should the price retrace significantly below the 3525 level i.e. 3450, the bullish indications would be considered to have failed.

Source: ProRealTime charts, as of 06/05/2014

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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