Technical Tuesday

17 November 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:

African Rainbow Minerals vs Anglo American Plc

Mondi Ltd

Reinet Investments SCA

South Africa 40 index

Technical view

Over the last week,the  South Africa 40 cash index broke the guided support level at 47100 and traded to the initial support target at 45900. The price has since formed a bullish reversal candle (circled blue) whilst in oversold territory. 

These indications support the view of a price rebound, which looks to be manifesting at present. The price is trading near resistance at 47100, which if broken further favours a move to the next level of resistance at 47930. While the short-term indications are technically bullish, the logical failure level at 45250 (short-term low) provides a relatively unattractive risk relative to reward scenario at present.

Click here to view South Africa 40 chart

Equities in focus

African Rainbow Minerals Ltd vs Anglo American Plc

The chart considered is that of African Rainbow Minerals (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in ratio format. The RSC has experienced a decline in value recently which highlights that security 1 (African Rainbow Minerals) has been underperforming security 2 ( Anglo American Plc).

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 normality favouring a possible pair trade opportunity i.e. long African Rainbow Minerals, 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. African Rainbow Minerals rising and Anglo American Plc falling
  2. African Rainbow Minerals rising faster than Anglo American Plc l rising
  3. African Rainbow Minerals falling slower than Anglo American Plc falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 7.5%. A stop-loss would be considered equal to the anticipated gain of 7.5%.

Click here to view the African Rainbow Minerals vs Anglo American chart

Mondi Ltd

Since breaking out of the triangle pattern (highlighted in previous weeks), the price of Mondi Ltd has returned to the breakout level and formed a bullish engulfing candle pattern (circled red). Breakout traders will often use the first price pullback after a breakout as a second opportunity to accumulate in line with the trend, which preceded the pattern, which in this case is up.

The bullish engulfing candle pattern suggests the short-term pullback has ended and renewed gains are possible. The short-term high at 32700 provides the initial upside target favoured, a break of which further favours a move to the target projected from the triangle pattern at 35300. A close below the horizontal support level at 29700 would consider the failure of the upside move anticipated. 

Click here to view the Mondi chart

Reinet Investments SCA

The share price of Reinet Investments has pulled backed from the recent all-time high to trend line support. The price looks to be forming a bullish reversal at trend line support, which is circled blue on the chart. The Stochastic is crossing through its trigger line in oversold territory supporting the bullish price reversal. The initial upside target favoured is 3100, a break of which further favours a move to the all-time closing high at 3200. 

Click here to view the Reinet Investments 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 17/11/2015

Mondi Ltd

Source:  ProRealTime charts, as of 17/11/2015

Reinet Investments SCA

Source:  ProRealTime charts, as of 17/11/2015

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