Technical Tuesday

19 May 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:

Anglo American Platinum Ltd vs Impala Platinum Holdings Ltd

Aspen Pharmcare Group Holdings Ltd

Bidvest Group Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index has drifted back and forth through the pivotal 47980 throughout the last week forming a consolidation between levels 47725 and 48310. The price looks to have broken out of this range (black arrow) with a close above resistance on Monday (18 May).

The breakout candle is a significantly longer range day with a close near the high of the day tilting the short-term bias in favour of further upside. The short-term upside bias is a tentative view in light of Tuesday’s (19 May) marginal pullback from the breakout.

Although the price activity on Tuesday shows a decline from open to close the candle has managed to make a higher high and higher low. Aggressive traders may target a move towards resistance at 48810 whilst using a close below 47725 as an indication of failure thereof.

Those traders with a more conservative approach might consider waiting for further confirmation before getting involved in the current tentative commitment.

Source: ProRealTime charts, as of 19/05/2015

Equities in focus

Anglo American Platinum vs Impala Platinum Holdings Ltd

The chart considered is that of Amplats (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 (Amplats) has been underperforming security 2 (Impala 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 to normality favouring a possible pair trade opportunity i.e. long Amplats, short Impala Platinum. 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. Amplats rising and Impala Platinum
  2. Amplats rising faster than Impala Platinum
  3. Amplats falling slower than Impala Platinum

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.5%. A stop-loss would be considered equal to the anticipated gain of 5.5%.

Source: ProRealTime charts, as of 19/05/2015

Aspen Pharmacare Holdings Ltd

The share price of Aspen Pharmacare has broken out of an ABC reversal pattern. The pattern resembles that of an inverse head and shoulders pattern with the left shoulder omitted. The implications of the pattern are the same in that it warns of the recent trend down now looking to reverse back up, hence the term “reversal pattern”.

The spike in volume below the price low at point “A” suggests that the move down may have capitulated with significant accumulation having taken place. The height of the ABC formation projected from the breakout level at “B” arrives at an upside target of 39750, while a close below level “C” would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  19/05/2015

Bidvest Group Ltd

Bidvest looks to have formed a bullish candlestick reversal (circled black) of the 200-day simple moving average. Strong volume has accompanied the reversal suggesting significant accumulation at these lower levels.

The stochastic has crossed out of oversold territory in line with the long-term uptrend. These are bullish indications and a move towards resistance at 32250 is favoured, a break of which further favours a move towards 33500.

A price close below the recent low at 30350 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  19/04/2015

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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