Technical Tuesdays

11 March 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:

RMB Holdings vs Firstrand Ltd

MTN Group Ltd

Northam Platinum Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index closed above the previously indicated resistance of our range alluding to an upside breakout. The price has fallen short of our 43500 initial target and once again retraced into the consolidation area.

The trading range is now extended to accommodate the recent high, therefore resistance is considered at 43400 while support remains at 42200. The long-term trend remains up as the price trades firmly above our 200 day simple moving average (200MA). The price is showing bullish intent as we witness long wicks on our last two candles (green arrows).

These long wicks show the price is being rejected at the lows of these candles and the SA40 index is being bought back up to close nearer the highs of the two days. With these intraday reversals in line with the long-term uptrend, a retest of 43400 is favoured.

Should a break of the 43400 level be confirmed, trend line resistance at 44000 is anticipated as the next level of resistance.

Source: ProRealTime charts, as of 11/03/2014

Equity in focus

RMB Holdings vs Firstrand Ltd

The chart considered is that of RMB Holdings (candlestick) 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 (RMB) has been underperforming security 2 (Firstrand Ltd). 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 RMB, short Firstrand. 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. RMB rising and Firstrand falling
  2. RMB rising faster than Firstrand rising
  3. RMB falling slower than Firstrand falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 2.7%. A stop-loss would be considered equal to the anticipated gain of 2.7%. 

RMB Holdings and Firstrand Ltd will both be ex-dividend on the 24th of March 2014. Should the set-up be in effect on this date, the dividend should be inconsequential as they are of similar size for each company.

Source: ProRealTime charts, as of 11/03/2014

MTN Group Ltd

The price of MTN has broken out of an inverse head and shoulders formation. This formation is considered a reversal pattern, as it warns of the preceding downtrend reversing into a new uptrend.

The height from the head (H) to the neckline line at 20000, projected from the neckline, arrives at a near-term target of 21000. Aggressive breakout traders would have entered on the initial break of the neckline at 20000, while more conservative breakout traders would wait for the price to return near the breakout level, at 20000, for an entry opportunity. The price trading below the right shoulder (R) would render the above indications to have failed.

It should be noted that on the 24th of March MTN is ex-dividend with the dividend amount expected to be R6.65 per share. Should the technical setup not have realised the target or failure level by this time, the failure level and target are revised lower by the dividend amount.

Source: ProRealTime charts, as of 11/03/2014

Northam Platinum Ltd

The price of Northam has been trading in a range bound environment for the last six months. The relevant support level of the range is considered at 3880, while previous resistance is considered at 4300.

Over the last six months we have witnessed strong volumes supporting the price around 3880, suggesting that it is a level where Northam shares are accumulated.

Currently, the stochastic oscillator is in oversold territory supporting the price and volume activity. Over the last six months these oversold signals have done well in predicting a rebound in price.

These indications are considered bullish and range traders would look for entry near the aforementioned support level with resistance being the favoured target at 4300. Should the price close well below our dotted support line at around 3825, the above considerations would be deemed to have failed.

Source: ProRealTime charts, as of 11/03/2014

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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