Technical Tuesday

15 September 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:

MMI Holdings Ltd vs Sanlam Ltd

SABMiller PLC

Pioneer Foods Ltd

South Africa 40 index

Technical view

Over the last week the  South Africa 40 cash index rallied to reach the initial upside target at 44835, however lacked the momentum to realise the channel resistance target thereafter. The non-directional price action to follow has changed the shape of the consolidation and therefore the channel lines have now been removed.

The index is consolidating in lure of the upcoming rates decision out of the U.S. on Thursday evening. We await a directional commitment in the form of a breakout from the area highlighted red on the chart. For an upside breakout a close above 44470 is needed, in which case 45380 becomes the initial target favoured.

For a downside breakout, a close below 42900 is needed in which case 42030 becomes the initial target favoured. A breakout in either direction before Thursday’s U.S. data is released will carry less conviction than a breakout after the data is released. While the short-term price action is in a consolidation, the longer-term trend bias at this stage remains negative.

Click here to view South Africa 40 chart

Equities in focus

MMI Holdings Ltd vs Sanlam Ltd

The chart considered is that of MMI Holdings (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 (MMI Holdings) has been underperforming security 2 ( Sanlam).

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 MMI Holdings, short Sanlam.

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. MMI Holdings rising and Sanlam falling
  2. MMI Holdings rising faster than Sanlam rising
  3. MMI Holdings falling slower than Sanlam falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 4%. A stop-loss would be considered equal to the anticipated gain of 4%.  

Click here to view the MMI Holdings vs Sanlam chart

SABMiller PLC

SABMiller looks to have broken out of a bear flag (parallel black lines) formation after finding resistance on the 200 day simple moving average (blue line). A bear flag formation is considered a pause in a directional move before it is continued.

In this scenario the direction is down. In addition to the bearish price action the Stochastic is crossing out of overbought territory whilst displaying a negative divergence with the price (dotted red lines). The recent closing low at 59800 is the initial target favoured, if this level this level is broken, 58300 is the next downside target favoured. A close above resistance at 64100 considers the failure of the aforementioned bearish indications.

Click here to view the SABMiller chart

Pioneer Foods Ltd

The share price of Pioneer Foods has consolidated into a triangle formation. Triangle patterns are referred to as continuation patterns as they have a habit of forming before the trend, which preceded the consolidation, is continued.

It is however prudent to wait for a breakout to occur rather than pre-empting the move. A close above 20320 considers an upside breakout in line with the preceding uptrend. Should this situation occur the recent high at 21190 becomes the initial resistance target favoured; a break of this level further favours a move to the projected target from the triangle consolidation (dotted lines) at 22700.

A close below 18960 would consider the failure of the upside breakout scenario. Should the price close below 18960 before incurring the upside breakout scenario, a wait and see approach is considered as the move would be against the longer term uptrend. 

Click here to view the Pioneer Foods 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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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)

South Africa 40 chart

Source:  ProRealTime charts, as of 15/09/2015

MMI Holdings vs Sanlam

Source:  ProRealTime charts, as of 15/09/2015

SABMiller Ltd

Source:  ProRealTime charts, as of 15/09/2015

Pioneer Foods

Source:  ProRealTime charts, as of 15/09/2015

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