Technical Tuesday

14 April 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:

Grinrod Ltd

Truworths International Ltd

Capitec Bank Holdings Ltd vs PSG Group Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index  confirmed a breakout of the 46700 resistance and proceeded to trade toward the previous high resistance target at 47410. The price is finding resistance at the same time that the Stochastic has moved firmly into overbought territory.

The trend bias is however up and should a retrace occur from this level, long entry would be considered at 46700. A failure level from this entry would be a close below the dotted trend line support on our chart at 46400, as in this circumstance a retest of the 45550 level would be considered.

Should a price close above 47410 occur, a breakout is considered in line with the trend (which holds more relevance than the Stochastic’s overbought indication). In this situation a move towards trend line resistance at 48345 is favoured.

Source: ProRealTime charts, as of 14/04/2015

Equities in focus

Truworths International Ltd

The price of Truworths has been rejected above resistance 9680 as noted by the long wick on the candle marked with the red arrow. The price is also finding resistance at the same time that the Stochastic is crossing though its signal line in overbought territory. The low volume on the recent move up suggests the price remains in consolidation and there is minimal support or enthusiasm on the move up.

A near term move back to support at 9048 is favoured in line with these indications, a break of which further favours a move to the next level of support at 8665. A price close above the short term high at 9732 would consider the failure of the bearish indications. 

Source:  ProRealTime charts, as of  14/04/2015

Grinrod Ltd

The price of Grindrod looks to have formed a falling wedge in the current downtrend. In the current context the pattern alludes to a loss in downside momentum and a possible reversal to follow. The green arrows highlight the long wicks on the last two candles suggesting a price rejection at these lower levels. A short term rebound to wedge resistance at 1800 is favoured, a break of which further favours a move to horizontal resistance at 1890.

A price close below the recent low at 1625 would consider the failure of the bullish indications. The bullish reversal is against the longer term downtrend thereby being contrarian in nature and carrying a higher degree of risk.

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 Group). 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 The PSG Group. 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 The PSG Group falling
  2. Capitec rising faster than The PSG Group
  3. Capitec falling slower than The PSG Group

Should one of these scenarios play out successfully the expectation would be for a net gain of 7.45%. A stop-loss would be considered equal to the anticipated gain of 7.45%.  

Source:  ProRealTime charts, as of  14/04/2015

Source:  ProRealTime charts, as of  14/04/2015

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

 

 

IG provides an execution-only service. The material on this website does not contain (and should not be construed as containing) investment advice or an investment recommendation, or a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of the above information. Consequently any person acting on it does so entirely at his or her own risk. The research does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. This communication must not be reproduced or further distributed. The price levels provided are derived from ProRealtime Charts (IT-Finance)

Open an account now

It's free to open an account, takes less than five minutes, and there's no obligation to fund or trade.

You might be interested in...

  • Execution and pricing

    Get fast, reliable execution and the best available prices.

  • Our charges

    We're clear about our charges, so you always know what fees you will incur.

  • Learn about IG

    See how we've been changing the face of trading for more than 40 years.

Contact us

24 hours a day from 10am Saturday to Friday night at midnight.

010 344 0053

You can also email helpdesk.za@ig.com