Technical Tuesdays

7 October 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:

Mr Price vs Truworths

SABMiller

PPC

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

South Africa 40 cash index has reached and exceeded the downside target (target 43065 low 42640) from the large breakout discussed in previous weeks. The price is now trading below the 200MA and the long term uptrend appears broken, although a new long term downtrend has yet to be confirmed. The price is now rebounding from oversold levels and the question remains whether we are experiencing the proverbial “Dead Cat Bounce” (before a continuation lower) or the beginning of a renewed uptrend.

With this in mind the move down has been measured and the 33%, 50% and 66% (Dow Theory) levels show how much of the recent weakness has been erased. Currently the price has erased 33% of the short term downtrend. Should the price manage to trade above 50% at 44600, more than half the short term decline would have been recouped and the expectation for further downside would be diminished. Further confirmation that the long term uptrend may be resuming would be for the price to confirm a close above the 200MA at 44700.

 

Source: ProRealTime charts, as of 07/10/2014

Equities in focus

Mr Price vs Truworths

The chart considered is that of Mr Price (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 (Mr Price) has been underperforming security 2 (Truworths). 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 Mr Price Short Truworths.

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. Mr Price rising and Truworths falling
  2. Mr Price rising faster than Truworths rising
  3. Mr Price falling slower than Truworths falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 6%. A stop-loss would be considered equal to the anticipated gain of 6%.  

Source: ProRealTime charts, as of 07/10/2014

SABMiller

The price of SABMiller looks to be reversing back up after the recent pullback experienced from all-time closing high. The Stochastic has crossed its trigger line in oversold territory whilst displaying a positive divergence with the price.

Positive divergence is considered when the price is making higher lows while the indicator has made lower lows. These indications are considered short term bullish and a move towards previous resistance at 63300 is favoured as the initial short term target. The price closing below horizontal support at 58000 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  07/10/2014

PPC

Short-term weakness has brought the price of PPC towards historical support (2810) of the long term range between levels 2810 and 3315. The price drifting periodically above and below the 200 day simple moving average (200MA) confirms the non-directional intent long term, confirming the broader consolidation/range.

The Stochastic trading in oversold territory suggests that near term selling has reached a point of capitulation. A short-term rebound in price is favoured with the initial resistance target considered at 3075. The Average True Range indicator shows price volatility to be in the vicinity of 83c on a normal day.

This distance is projected below the current price to arrive at 2770. Should the price close below this level failure of the bullish intent is considered. The price closing below horizontal support at 9390 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  07/10/2014

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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