Technical Tuesday

10 November 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:

Capitec Bank Holdings Ltd vs PSG Group Ltd

Coronation Fund Managers Ltd

Wilson Bayly Holmes-Ovcon Ltd

South Africa 40 index

Technical view

Over the last week,the  South Africa 40 cash index rallied from the flag breakout (flag = blue parallel lines) to reach the initial resistance target at 49117, although failed to extend gains and reach the channel resistance target.

The price is currently below the 47600 failure level and testing a confluence of trend line and horizontal support at 47100. The 47100 level appears critical and a close below could suggest a short term reversal of the uptrend.

The next level of support is considered at 45900 which if broken considers 44200 as a lower level of support. Traders with a bullish bias might prefer to wait for weakness to play out to at least the first level of support (if downside breakout manifests) before committing to further upside. Should support at 47100 not be broken, trend followers might prefer a price close above 47600 to confirm the renewal of short term gains. 

Click here to view South Africa 40 chart

Equities in focus

Capitec Bank Holdings Ltd vs The PSG Group Ltd

The chart considered is that of Capitec (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 ( Capitec) has been underperforming security 2 ( PSG).

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 Capitec Short PSG.

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. Capitec rising and PSG falling
  2. Capitec rising faster than PSG l rising
  3. Capitec falling slower than PSG falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.4%. A stop-loss would be considered equal to the anticipated gain of 4.4%.  

Click here to view the Capitec vs PSG chart

Coronation Fund Managers Ltd

The share price of Coronation Fund Managers has pulled back to the breakout area (diagonal blue line) of the inverse head and shoulders pattern labelled L, H and R on the chart. The pullback is also the first of its sort since the bullish crossover of the 20 and 50 day simple moving averages (marked with arrow).

Both the moving average crossover and inverse head and shoulders suggest a change in directional trend from down to up. The short term high at 7860 is the initial target favoured, a break of which further favours a move to the patterns projected target at 8080.

Should weakness resume and the price close below support at 6720, the bullish indications would be deemed to have failed. 

Click here to view the Coronation chart

Wilson Bayly Holmes-Ovcon Ltd

Wilson Bayly Holmes-Ovcon has seen its share price correcting for the first time from the rally which commenced late in August 2015. The price has now formed a single candlestick reversal (circled blue) off support at 11545.

The 20 day moving average trades firmly above the 50 day simple moving average suggesting that the short to medium term trends remain firmly up. The stochastic is in oversold territory, suggesting that the correction maybe overdone. These are considered bullish indications in technical analysis and a move back towards resistance at 13510 is favoured.

However, should the price resume a short term decline and close below support at 11545, the bullish indications would be deemed to have failed. 

Click here to view the Wilson Bayly Holmes-Ovcon 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 10/11/2015

Capitec vs PSG chart

Source:  ProRealTime charts, as of 10/11/2015

Coronation chart

Source:  ProRealTime charts, as of 10/11/2015

Wilson Bayly Holmes-Ovcon chart

Source:  ProRealTime charts, as of 10/11/2015

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