Technical Tuesday

7 July 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:

MTN Group Ltd vs Vodacom Group Ltd

Discovery Ltd

Life Healthcare Group Holdings Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index continued to find resistance at the guided gap level (46860), following which another downside gap and breakout was confirmed. The price has traded aggressively through the support targets and in so doing has put the larger head and shoulders pattern (labelled L, H & R) into play. The pattern warns of a possible change in the longer-term directional trend.

The next support level considered is at 43800, which if broken considers the next level of support significantly lower at 41700. Breakout traders who have missed the initial breakout might consider waiting for a pullback towards resistance at 45180 for short entry favouring further downside. The index would need to produce significant gains for renewed upside to become favoured i.e. a close above gap resistance at 46215.


Click here to view South Africa 40 chart

Equities in focus

MTN Group Ltd vs Vodacom Group Ltd

The chart considered is that of MTN (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 (MTN) has been underperforming security 2 (Vodacom).

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 4.5%. A stop-loss would be considered equal to the anticipated gain of 4.5%.

Click here to view the MTN vs Vodacom chart

Discovery Ltd

Discovery looks to be forming an inverse head and shoulders formation, although the pattern is not yet complete. The pattern alludes to the possibility of the recent downtrend reversing into an uptrend.

A break above 12950 is needed to put the pattern in play. Should this occur, the height of the pattern projected predicts an upside target at 14385. A close below the right shoulder at 12200 would suggest the failure of the reversal pattern and possibly further downside to the recent low at 11600.

Click here to view the Discovery chart

Life Healthcare Group Holdings Ltd

Life Healthcare looks to be breaking out (to the downside) of a short-term consolidation after finding resistance on the 50 day simple moving average (blue line on chart). The Stochastic has also just crossed out of overbought territory supporting the price action.

These indications are considered short term bearish and the height of the consolidation projected from the breakout level suggests a downside target of 3550, which if broken further favours a move towards support at 3460. A close above the 50 day moving average at 3770 would consider the failure of the bearish indications. 

Click here to view the Life Healthcare 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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South Africa 40 chart

Source: ProRealTime charts, as of 07/07/2015

MTN vs Vodacom chart

Source: ProRealTime charts, as of 07/07/2015

Discovery chart

Source: ProRealTime charts, as of 07/07/2015

Life Healthcare

Source: ProRealTime charts, as of 07/07/2015

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