Technical Tuesdays

22 July 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:

 

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South Africa 40 index

Technical view

Over the last week, the South Africa 40 cash index continued its near-term retracement  to reach a short-term low at 45600. The new short-term low now becomes an important reference point for clues on possible trend reversal forming. Should the price reverse before reaching the all-time high at 47160, it would indicate lower significant highs.

Should the price then proceed to trade below the recent low at 45600, we would then have lower lows in conjunction with the lower highs i.e. the building blocks of a downtrend. This is not yet the case, and trading against the long-term uptrend  is considered to have a higher degree of risk over looking for entry in conjunction with the trend.

Warnings that the uptrend may be looking to reverse are however forming. The linked blue circles on our chart highlight how the recent low has overlapped the previous high. When this occurs the trend is said to be “creeping” i.e. losing its momentum. In a “strong” trend the security would be bought back on a retracement before the low reaches the previous high as buyers are more eager to get involved.

A further clue of the uptrend weakening is marked with the red arrows. Here we see four days’ worth of gains  erasing only one days’ worth of loss. This in turn has formed what looks (not yet confirmed) to be a bear flag formation (parallel red lines) and suggests that the short-term momentum is negative i.e. strong move down followed by a weak move up.

 

Source: ProRealTime charts, as of 22/07/2014

Equities in focus

AngloGold Ashanti Ltd

The price of AngloGold has broken out of an inverse head and shoulders formation (labelled L, H & R), the pattern suggests a bullish reversal of the preceding downtrend.

The pattern predicts a target at 21150 by measuring the height of the formation and projecting an equal distance from the breakout level at 18700. Traders that have missed the initial breakout might wait for a possible retracement towards the breakout level at 18700 for long entry.

The price closing below the right shoulder at 17500 (labelled R) would consider the inverse head and shoulders formation to have failed. 

Source: ProRealTime charts, as of  15/07/2014

Shoprite Holdings Ltd 

The price of Shoprite has broken out of an inverse head and shoulders formation (labelled L, H & R), the pattern suggests a bullish reversal of the preceding downtrend.

The pattern predicts a target at 16900 by measuring the height of the formation and projecting an equal distance from the breakout level at 16000. Traders that have missed the initial breakout might wait for a possible retracement towards the breakout level at 16000 for long entry.

The price closing below the right shoulder at 15550 (labelled R) would consider the inverse head and shoulders formation to have failed. 

Source:  ProRealTime charts, as of  15/07/2014

Imperial Holdings Ltd

The price of Imperial has broken out of a head and shoulders formation (labelled L, H & R) the pattern suggests a bearish reversal of the preceding uptrend.

The initial downside target favoured is 18425, also the recent low. The pattern predicts a further target at 17200 by measuring the height of the formation and projecting an equal distance from the breakout level at 19225.

The price closing above the right shoulder at 17500 (labelled R) would consider the head and shoulders formation to have failed.

Source:  ProRealTime charts, as of  15/07/2014

Google Inc A

The price of  Google Inc A shares looks to be finding support at $580 level ahead of the upcoming results. The long-term trend remains up as gauged by the price trading firmly above the 200 day simple moving average (200MA).

The price is expected to remain non-committal to a direction in the near-term in lure of the results release. Post the results outcome, keeping with the long-term upside bias, trend followers would look to accumulate should weakness occur, provided the price does not close below the confluence of the 200MA and horizontal support at $550.

Should the initial reaction to the results be positive, breakout traders would look for long entry in line with the uptrend above $595, with the recent high at $615 as a favoured resistance target.

Google is expected to release 2nd quarter earnings on Thursday. Find out if Q2 results will be better than Q1, read full article.

Source:  ProRealTime charts, as of  14/07/2014

Market overview

A Technical Analysis overview of key indicators and sectors with regards to trend, volatility and overbought/oversold conditions.

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