Technical Tuesdays

08 April 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:

Cie Financiere Richemont

Lonmin PLC vs Northan Platinum Ltd

Mediclinic International Ltd vs Life Healthcare Group Holdings Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index double-bottom target at 43550 has been realised, and slightly exceeded to make a new high around 43820.

Since then, the price has retraced marginally, providing the first pullback from a new all-time high. The upward trend bias remains and the recent high at 43820 once again becomes the favoured initial resistance target, which if exceeded further favours the upper trend line resistance at 44100.

The upper and lower trend lines (black lines) shows the price starting to form a rising wedge, giving us an indication that the upward trend has started to creep, i.e. the trend may be losing its momentum. Although the upward trend remains favoured, the rising wedge provides warning of possible correction in future.

With this in mind should the 44100 level be reached caution is considered, and if support at 42550 is breached a short-term downside target becomes favoured at 41600.

Source: ProRealTime charts, as of 08/04/2014

Equity in focus

Richemont

The price of Richemont has approached the horizontal support level at 9950.

The current low volume (circled in blue) is typical of price activity within a consolidation or range bound environment. In the past we have seen strong volume move into Richemont at this support level, suggesting a previous level of accumulation.

Range traders would look to accumulate near the aforementioned support level, favouring a move back towards resistance at 10400, using half the range distance projected below entry as a possible stop level.

Source: ProRealTime charts, as of 08/04/2014

Lonmin PLC vs Northam Platinum Ltd

The chart considered is that of Lonmin with a Relative Strength Comparison (RSC) indicator added. The RSC 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 (Lonmin) has been underperforming security 2 (Northam Platinum). 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 Lonmin, short Northam Platinum. 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. Lonmin rising and Northam Platinum falling
  2. Lonmin rising faster than Northam Platinum rising
  3. Lonmin falling slower than Northam Platinum falling.

Should one of these scenarios play out successfully the expectation would be for a gain of 4.9%. A stop-loss would be considered equal to the anticipated gain of 4.9%.

Source: ProRealTime charts, as of 08/04/2014

Mediclinic Ltd vs Life Healthcare Ltd

The chart considered is that of Mediclinic (bar chart) with a Relative Strength Comparison (RSC) indicator added. The RSC 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 (Mediclinic) has been underperforming security 2 (Life Healthcare). 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 Mediclinic, short Life Healthcare. 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. Mediclinic rising and Life Healthcare falling
  2. Mediclinic rising faster than Life Healthcare rising
  3. Mediclinic falling slower than Life Healthcare 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 08/04/2014

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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