Technical Tuesdays

20 January 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:

JSE Ltd

PPC Ltd

Firstrand Ltd vs Standard Bank Group Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index trades at more or less the same level as last week while the index continues to search for a longer-term direction. The bullish engulfing referred to last week failed in providing a short-term bullish impetus, as the price fell to the next level of support guided at 41700.

The green arrows highlight the long lower wicks on the three candles near 41700 and indicate that the price of the index is being rejected at these lower levels as buyers support the price. This adds credence to a short term bullish momentum now in place and a move towards resistance at 43800 is once again favoured in the near-term.

The medium and long-term outlook remains unclear at this stage and patience should be considered until the price starts to commit to a directional bias.

Source: ProRealTime charts, as of 20/01/2015

Equities to watch

JSE Ltd

The chart of JSE Ltd is forming (needs to confirm at close) a bullish engulfing candle pattern (circled blue) following the recent pullback from its all-time high. A bullish engulfing suggests that the short-term move down may be complete and suggests a possible resumption of the longer-term uptrend. 

The strong increase in volume (circled red) at the short-term low confirms the price action suggesting that short-term selling may have climaxed. The Stochastic oscillator looks to be moving out of oversold territory whilst displaying a positive divergence with the price (black trend lines below price and indicator). 

These indications are considered bullish in technical analysis terms and favour a move towards recent resistance at 12140. A close below 11000 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  20/01/2015

PPC Ltd

The price of PPC has formed a bullish price reversal (circled blue) after the recent downtrend alluding to a possible short-term rebound in its share price. The Stochastic oscillator is crossing out of oversold territory and displaying a reverse divergence with the price (black trend lines on indicator and price). 

These indications are considered bullish and favour a short term rebound in price. Recent resistance at 2600 is the initial target favoured, while a close below the lower trend line support at 2270 considering the failure of the bullish indications.

Source: ProRealTime charts, as of  20/01/2015

Pairs to watch

Firstrand Ltd vsStandard Bank Group Ltd

The chart considered is that of Firstrand with a Relative Strength Comparison (RSC) indicator added. The RSC 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 (Firstrand) has been underperforming security 2 (Standard Bank). 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 Firstrand, short Standard Bank.

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. Firstrand rising and Standard Bank falling
  2. Firstrand rising faster than Standard Bank rising
  3. Firstrand falling slower than Standard Bank falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.1%. A stop-loss would be considered equal to the anticipated gain of 3.1%.  

Source: ProRealTime charts, as of  20/01/2015

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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