Technical Tuesdays

9 September 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:

Murray & Roberts Holdings Ltd

Wilson Bayly Holmes - Ovcon Ltd

Goldfields

Northam Platinum Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 cash index has broken out of the range between levels 45850 and 46500 before retracing back within these levels. If we consider the short term move up (blue line) and subsequent pullback (parallel red lines) a bullish flag formation is highlighted.

This pattern highlights a strong move up followed by a slow cumbersome move back down, alluding to the short term momentum remaining bullish.

Another breakout above resistance at 46500 would be preferable, however the setup remains positive. In this scenario the high at 47160 becomes the favoured target with a close below flag support at 46000 considering the failure of the short term bullish indication.

 

Source: ProRealTime charts, as of 09/09/2014

Equities in focus

Murray & Roberts vs Wilson Bayly Holmes-Ovcon Ltd 

The chart considered is that of Murray & Roberts 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 (Murray & Roberts) has been underperforming security 2 Wilson Bayly Holmes-Ovcon Ltd (WBHO). 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 Murray & Roberts Short WBHO. 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. Murray & Roberts rising and WBHO falling
  2. Murray & Roberts rising faster than WBHO rising
  3. Murray & Roberts falling slower than WBHO falling. 

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.4%.   

Source: ProRealTime charts, as of  09/09/2014

Goldfields

The price of Goldfields is reversing of horizontal support at 4615. The reversal is accompanied by a significant increase in volume suggesting this support level to be an area of accumulation. A retest of the recent short term high at 5100 is favoured in the near term, while a close below trend line support at 4450 would consider the failure of the bullish indications. 

Source: ProRealTime charts, as of  09/09/2014

Northam Platinum Ltd

The price of Northam is reversing off horizontal support at 4200. We have seen an increase in volume (circled red) at this level suggesting an accumulation interest at this point. Furthermore, the Stochastic oscillator is starting to move out of oversold territory, which in a range bound price environment, is considered a positive indication.

The price reversal, supported by volume and the oscillator, is considered bullish, favouring a rebound towards resistance at 4375, which if broken further favours a move towards 4565. A price close below 4115 would consider the failure of the bullish indications. The 4115 level is half the distance of the range (4200 to 4375) projected below support. This suggested failure level considers a risk half of the anticipated reward.

Source: ProRealTime charts, as of  09/09/2014

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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