Technical Tuesdays

13 May 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:

Anglo American Platinum vs Impala Platinum

Mondi Ltd

African Rainbow Minerals Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The  South Africa 40 index looks to have broken to the upside of the range between levels 43500 and 44100.

Breakout traders who have already committed to the move would look to trendline resistance at 44500 as the initial target favoured, with a stop loss considered in the middle of the range at 43800. Should the trendline resistance target be broken, the height of the range projected from the breakout level predicts a further proportional upside target at 44700.

Today’s price activity witnesses the price testing the breakout level. Should the price fail to close above the 44100 those not committed to the breakout may question its validity. If this situation does occur the breakout could be considered as a false breakout, with the 43500 level being the favoured support target. 

This would present a contrarian view as the favoured target is contrary to the long-term uptrend. A stop loss for a short bias would be considered above the high of today’s price activity.

 

 

Source: ProRealTime charts, as of 13/05/2014

Equity in focus

Anglo American Platinum vs Impala Platinum 

The chart considered is that of Anglo American Platinum Ltd (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 (Anglo American Platinum) has been underperforming security 2 ( Impala Platinum Holdings 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 Anglo American Platinum, Short Impala 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. Anglo American Platinum rising and Impala Platinum falling
  2. Anglo American Platinum rising faster than Impala Platinum rising
  3. Anglo American Platinum falling slower than Impala Platinum falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.1%. A stop-loss would be considered equal to the anticipated gain of 3.1%.  

Source:  ProRealTime charts, as of 13/05/2014

Mondi Ltd

The price of Mondi Ltd has formed a double bottom formation, marked with the blue “W”.

The pattern is considered a reversal pattern as it warns of the short-term downtrend reversing into a near-term uptrend. The Short-term trend looks to be aligning with the long-term trend which is considered up, while the price trades firmly above the 200 day simple moving average (200MA).

The height of the pattern (dotted vertical line) projected from the breakout level (18200) arrives at a proportionate target of 19400. Should the price trade below the 17600 level, the bullish indications would be deemed to have failed.

The 17600 level is used in this scenario as it represents half the distance of the expected reward thereby creating a risk reward ratio of 1:2 for the technical setup. 

Source:  ProRealTime charts, as of 13/05/2014

African Rainbow Minerals Ltd

The price of African Rainbow Minerals has formed a falling wedge formation which, in the current scenario, is considered short-term bullish.

The price activity is supported by the oscillator (stochastic) moving out of oversold territory, as well as forming a bullish divergence with the price (dotted trend lines on indicator and price). A bullish divergence occurs when the securities price is making lower lows while the indicator is making higher lows.

The initial resistance target at 20980 is favoured, while the price trading below the support line of the wedge at 19000 would consider failure of the aforementioned bullish indications. 

Source:  ProRealTime charts, as of 13/05/2014

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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