Technical Tuesdays

17 June 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, USD/ZAR, some key indicators as well as the following equities:

Old Mutual vs Liberty Holdings

Anglo American Platinum

View market data

Company data

Dividends

Economic catalysts

South Africa 40 Index

Technical view

The South Africa 40 cash index has traded to and exceeded last week’s channel resistance target, making a new high at 45980.The pullback from the high has reached a low of 45400.The short term price activity has been to trade within these levels. It is for this reason that a consolidation or trading range is once again considered between 45400 and 45980.

The long term trend remains firmly intact favouring a long bias to trades considered. With this in mind range traders would look to accumulate near the support of the range with the recent high as a target to exit.

Breakout traders would look for a confirmed close above 45980 for a long entry with channel resistance at 46350 becoming the favoured target. A downside breakout would be reviewed for signs of directional change rather than used as an opportunity to trade against the long term uptrend.

 

Source: ProRealTime charts, as of 17/06/2014

USD/ZAR

Technical view

The USD/ZAR appears to be forming (not yet complete) an inverse head and shoulders reversal pattern. These patterns are considered reversal patterns as they have a habit of resulting in a change in trend direction.  A price close above 10.80 would complete the pattern. Should this occur the height of the pattern (dotted black line) projected from the breakout out level would suggest an upside target of 11.25. 

 

Source: ProRealTime charts, as of 1706/2014

Equities in focus

Old Mutual vs Liberty Holdings

The chart considered is that of Old Mutual (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 (Old Mutual) has been underperforming security 2 (Liberty). 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 Old Mutual Short Liberty.

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. Old Mutual rising and Liberty falling
  2. Old Mutual rising faster then Liberty rising
  3. Old Mutual falling slower then Liberty falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.2%. 

Source: ProRealTime charts, as of 17/06/2014

Anglo American Platinum

Anglo American Platinum appears to be forming (not yet complete) an inverse head and shoulders reversal pattern.

These patterns are considered reversal patterns as they have a habit of resulting in a change in trend direction.  A price close above 480 would complete the pattern. Should this occur the height of the pattern (dotted black line) projected from the breakout out level would suggest an upside target of 50300. The price closing below the right shoulder at 46500 would consider this pattern to be no longer valid. 

Source: ProRealTime charts, as of 17/06/2014

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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