Technical Tuesdays

17 February 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:

Exxaro Resources

Impala Platinum vs Anglo Americam Platinum

Shoprite Holdings

South Africa 40 index

Technical view

The South Africa 40 cash index has traded through the resistance target from last week at 46500 and looks well on track to test all-time high territory at 47150.The Stochastic oscillator has been in overbought territory for an extended period of time, but as this signal is against the underlying bullish trends, it alludes to a profit taking opportunity near the all-time highs, rather than an indication to trade against the trend.

Should a pullback from resistance at 47150 occur, previous resistance levels (46500, 45925) are anticipated as support level opportunities for long entry in line with the underlying bullish trends.

Should the price not retrace and manage to close above all-time high resistance, the blue channel resistance provides a short term upside target at 47950.

Source: ProRealTime charts, as of 17/02/2015

Equities to watch

Exxaro Resources Ltd

Exxaro has broken out of a symmetrical triangle formation with technical indicators Bollinger Bands and volume validating the breakout. Bollinger bands expand on an increase in price volatility and a price close above the upper Bollinger (while expanding) is often used as a confirmation of a breakout (as marked by the red arrow on the chart). This technique is said to should help in distinguishing when the price is committing to a directional bias rather than expanding the range bound trading environment.

High volume has supported the short term directional move and is circled red on the Exxaro price chart. 

The price has experienced first pullback since the initial breakout (blue arrow) and now looks to be continuing the upside move. The height of the triangle consolidation projected from the breakout level arrives at an upside target of 12130.

A price below support at 10300 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  17/02/2015

Shoprite Holdings Ltd

The price of Shoprite has formed a falling wedge formation. The pattern highlights a weak move down after a relatively strong move up, suggesting that the price momentum remains bullish.

The Stochastic has moved into oversold territory, supporting the price action and alluding to the short term weakness nearing the end of its cycle. These indications are bullish and in line with the long term trend (price trading above the blue line a 200MA).

Wedge resistance at 18150 is the initial target favoured, a break of which further favours a move towards 19150. A close below horizontal support at 16850 would consider the failure of these bullish indications. 

Source: ProRealTime charts, as of  17/02/2015

Pair to watch

Impala Platinum Holdings Ltd vs Anglo American Platinum PLC (SA)

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

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.2%. A stop-loss would be considered equal to the anticipated gain of 5.2%.  

Source: ProRealTime charts, as of  17/02/2015

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

 

 

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