Technical Tuesdays

20 May 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, key indicators as well as the following equities:

Assore Ltd vs African Rainbow Minerals Ltd

Sasol Ltd

Old Mutual PLC

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index followed through with last week’s breakout to exceed the forecasted 44700 target.

With the strong bullish bias we have witnessed in the near-term to support the longer term uptrend, we give the upward trend more precedence than the rising wedge’s caution from previous weeks. The price has experienced its first pullback since last week’s breakout and looks set to retest the recent high at 44840.

Should this level be breached, the short-term channel provides a further resistance target at 45150.

 

Source: ProRealTime charts, as of 20/05/2014

Equity in focus

Assore Ltd vs African Rainbow Minerals Ltd

The chart considered is that of Assore Ltd (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 (Assore) has been underperforming security 2 (African Rainbow Minerals Ltd).

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 Assore, short African Rainbow Minerals.

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. Assore rising and African Rainbow Minerals falling
  2. Assore rising faster than African Rainbow Minerals rising
  3. Assore falling slower than African Rainbow Minerals falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.8%. A stop-loss would be considered equal to the anticipated gain of 5.8%.  

Source: ProRealTime charts, as of 20/05/2014

Sasol Ltd

The price of Sasol Ltd is trading within a flat top triangle formation (red lines).

This type of formation is said to have a high probability of breaking to the upside, although it is wise to wait for the breakout to occur in either direction rather than preempting the move. The level at 60000 marks the resistance, while level 58250 marks the support of the up and downside breakout levels respectively.

Should a breakout occur, the height of the pattern (60000 – 56950 = 3050) predicts a proportionate move in the same direction as the breakout.

Source: ProRealTime charts, as of 20/05/2014

Old Mutual PLC 

The price of Old Mutual PLC looks to have reversed from the short-term weakness near the channel support (parallel red lines).

The price is also showing a positive divergence with the stochastic oscillator, whilst in oversold territory. Bullish divergence occurs when the price is making higher lows while the indicator is making lower lows and is perceived as bullish for the share price.

The recent high at 3680 is the favoured target, which if exceeded further favours a move towards channel resistance at 3720. Should the price close below channel support at 3440 the bullish indications would be deemed to have failed.

Source: ProRealTime charts, as of 20/05/2014

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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