Technical Tuesday

22 September 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:

Foschini Group Ltd

New Gold Platinum EFT vs NewGold Issuer Ltd

Anglo American Plc vs BHP Billiton Plc (SA)

South Africa 40 index

Technical view

Over the last week the  South Africa 40 cash index broke out of the consolidation (red rectangle) highlighted last week and traded through the initial resistance target. The price has since found resistance on the upper trend line.

A shooting star and bearish engulfing candle pattern (circled red) marked the end of the short-term rally whilst warning of a possible retracement to follow. The retracement is currently underway and support is being tested at 44460. The short-term momentum is still considered bullish as we are experiencing the first pullback from the range breakout.

Breakout traders might look for a bullish reversal before the trend line support at 43800 targeting a move back to resistance at 46500. A close below support at 42900 would consider the failure of a move up and suggest renewed downside momentum.

Click here to view South Africa 40 chart

Equities in focus

Foschini Group Ltd

The price of the Foschini Group has broken out of a rising wedge formation. The pattern in the current context is considered a bearish continuation pattern in that it warns of the preceding downtrend resuming. The initial downside target favoured is 13970, a break of which further favours 13220. A close above resistance at 15475 would consider the failure of the bearish indication. 

Click here to view the Foschini Group chart

Pairs in focus

New Gold Platinum ETF Ltd NewGold Issuer Ltd

The chart considered is that of New Gold Platinum ETF (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 (New Gold Platinum ETF) has been underperforming security 2 ( NewGold Issuer).

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 New Gold Platinum ETF, short NewGold Issuer.

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. New Gold Platinum ETF rising and NewGold Issuer falling
  2. New Gold Platinum ETF rising faster than NewGold Issuer rising
  3. New Gold Platinum ETF falling slower than NewGold Issuer falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.8%. A stop-loss would be considered equal to the anticipated gain of 3.8%.  

Click here to view the New Gold Platinum EFT vs NewGold Issuer Ltd

Anglo American Plc vs BHP Billiton Plc (SA)

The chart considered is that of Anglo American Plc (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 (Anglo American Plc) has been underperforming security 2 ( BHP Billiton).

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 Anglo American Plc, short Billiton. 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. Anglo American Plc rising and Billiton falling
  2. Anglo American Plc rising faster than Billiton rising
  3. Anglo American Plc falling slower than Billiton falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 5%. A stop-loss would be considered equal to the anticipated gain of 5%.  

Click here to view the Anglo American Plc vs BHP Billiton Plc (SA) 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 22/09/2015

New Gold Plat ETF vs New Gold ETF

Source:  ProRealTime charts, as of 22/09/2015

Anglo American Plc vs BHP Billiton

Source:  ProRealTime charts, as of 22/09/2015

Foschini Group Ltd

Source:  ProRealTime charts, as of 22/09/2015

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