Technical Tuesday

06 October 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:

Telkom SA SOC Ltd

Firstrand Ltd vs Nedbank Group Ltd

Brait SE (SA)

South Africa 40 index

Technical view

The South Africa 40 cash index triggered the upside breakout (circled red) from the short-term decline (blue line) and traded to our trend line resistance target at 46400 (black arrow). A break of the black dotted trend confirms the short-term upward momentum and the next upside resistance target is now considered (and favoured) at 47400.

A break of 47400 further favours a move to 48500. The dotted trend line now anticipates a support level at 46250. A close below 45950 would imply a failure of the short-term bullish momentum and possible retest of support at 44900.

Click here to view South Africa 40 chart

Equities in focus

Telkom SA SOC Ltd

The price of Telkom has formed a bearish reversal candle pattern (circled red) off the resistance of the upward channel (parallel black lines). The slow upward nature of the channel suggests a consolidation rather than a committed upward trend and presents a possible range trading opportunity.

Horizontal support at 6420 is the initial downside target favoured, a break of which further favours a move to support at 5895. Should the reversal not translate into further declines and the price rally to close above channel resistance at 7100, the bearish indications would be deemed to have failed. 

Click here to view the Telkom chart

Firstrand Ltd vs Nedbank Group Ltd

The chart considered is that of Firstrand (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in ratio format. The RSC has experienced a decline in value recently which highlights that security 1 (Firstrand) 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 to normality favouring a possible pair trade opportunity i.e. long Firstrand, 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. Firstrand rising and Nedbank falling
  2. Firstrand rising faster than Nedbank rising
  3. Firstrand falling slower than Nedbank falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.8%. A stop-loss would be considered equal to the anticipated gain of 3.8%.  gain of 4.6%.  

Click here to view the Firstrand vs Nedbank chart

Brait SE (SA)

The price of Brait SE has broken out of a triangle shaped consolidation and looks to be renewing gains in line with the longer-term uptrend. The recent closing and intraday highs provide the favoured upside targets at 15915 and 16330 respectively.

Conservative breakout traders might hope for a retest of triangle support at around 14000 for long entry. A close below support at 13300 would consider the failure of the upside breakout.

Click here to view the Brait SE 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 06/10/2015

Telkom Ltd

Source: ProRealTime charts, as of 06/10/2015

Firstrand vs Nedbank

Source: ProRealTime charts, as of 06/10/2015

Brait SE

Source: ProRealTime charts, as of 06/10/2015

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