Technical Tuesday

14 July 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:

Foschini Group Ltd vs Truworths International Ltd

Super Group Ltd

Capitec Bank Holdings Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index fell just short of the 43800 downside support level before forming an intraday reversal in the form of a hammer (circled blue). The index price has since closed back above both gap resistance levels at 46215 and 46850 renewing some faith in an upside momentum present. The upside resistance target at 47540 is the next level favoured, as long as the short term support level at 45850 is upheld.

Should the price manage to trade above the 457540 level the longer-term head and shoulders pattern alluded to will be considered to have diminished relevance. Traders would consider caution ahead of Wednesday’s Chinese GDP data scheduled for release.

Click here to view South Africa 40 chart

Equities in focus

Foschini Group Ltd vs Truworths International Ltd

The chart considered is that of Foschini (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 (Foschini) has been underperforming security 2 (Truworths).

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 Foschini, short The Truworths. 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. Foschini rising and Truworths falling
  2. Foschini rising faster than Truworths
  3. Foschini falling slower than Truworths

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.1%. A stop-loss would be considered equal to the anticipated gain of 4.1%.

Click here to view the Foschini vs Truworths chart

Super Group Ltd

The price of Super Group has broken out of an inverse head and shoulders formation. The formation is considered a reversal pattern as it warns of a change in directional trend. In this scenario, it alludes to the reversal of the preceding downtrend into a new short-term uptrend.

The height of the pattern projected from the breakout level (3270) considers a proportionate upside target at 3530. A pullback towards the breakout level at 3270 may provide pattern traders a second entry opportunity, although a close below the right shoulder, labelled R, at 3170 would consider the failure of the bullish pattern.

Click here to view the Discovery chart

Capitec Bank Holdings Ltd

The price of Capitec looks to be breaking out of a bear flag formation at present. This pattern alludes to the continuation of the recent downtrend. The parallel red lines show recent occurrences of the pattern before further downside has commenced.

The blue parallel lines show the inverse of this (a bull flag) in an uptrend. The recent low at 41000 is the initial downside target favoured at present, although should the price managed to offset short-term weakness and close above 46250 the bearish indication would be deemed to have failed. 

Click here to view the Life Healthcare 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 14/07/2015

Foschini vs Truworths chart

Source: ProRealTime charts, as of 14/07/2015

Super Group chart

Source: ProRealTime charts, as of 14/07/2015

Capitec Bank

Source: ProRealTime charts, as of 14/07/2015

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