Technical Tuesdays

23 September 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:

Barclays Africa Group Ltd vs Standard Bank Group Ltd

Kumba Iron Ore Ltd vs African Rainbow Minerals Ltd

Bidvest Group Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

South Africa 40 cash index has broken through support at 45550 and realised a projected target from the height of the range at 44630. The larger range between levels 45050 and 47160 has experienced an intraday break of support although not yet confirmed with a close.

Should the breakout confirm with a close, the height of the pattern projected from the breakout level arrives at a downside target at 43065 (graph uses log scale not linear therefore target not exactly point size of range).

Should this breakout scenario play out, the price would be firmly below the 200MA and the long trend will no longer be considered as up although not yet confirmed as down. Short to medium-term trends are confirmed as down.

Source: ProRealTime charts, as of 23/09/2014

Equities in focus

Barclays Africa Group vs Standard Bank Group

The chart considered is that of Barclays Africa Group (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 (Barclays Africa Group) 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 Barclays Africa Group, 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. Barclays Africa Group rising and Standard Bank falling
  2. Barclays Africa Group rising faster than Standard Bank rising
  3. Barclays Africa Group falling slower than Standard Bank falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.1%. A stop-loss would be considered equal to the anticipated gain of 4.1%.

Source: ProRealTime charts, as of  23/09/2014

Kumba Iron Ore Ltd vs African Rainbow Minerals Ltd 

The chart considered is that of Kumba Iron Ore (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 (Kumba Iron Ore) has been underperforming security 2 ( African Rainbow Minerals). 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 Kumba Iron Ore, 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. Kumba Iron Ore rising and African Rainbow Minerals falling
  2. Kumba Iron Ore rising faster than African Rainbow Minerals rising
  3. Kumba Iron Ore falling slower than African Rainbow Minerals falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.4%. A stop-loss would be considered equal to the anticipated gain of 3.4%.

Source: ProRealTime charts, as of  23/09/2014

Bidvest Group Ltd

The price of Bidvest is trading towards the support of the range between levels 28040 and 29865. Excluding the high volume from last week Thursday, due to futures close out, the move from the top of the range towards support has been on relatively low volume.

This is indicative of a share that is in a range or consolidation rather than committed to a new directional downtrend. We have seen strong volume accumulation (circled red) at this level (28040) in the past before the price proceeded to rebound. With this in mind, the range trading opportunity is considered with the range resistance at 29245 favoured as the initial target, a break of which, further favours a move towards 29865.

The failure level for the above consideration is a price close below 27470. This level is derived by using the Average True Range (ATR) value subtracted from the current trading price. ATR shows the price volatility of the share and using this as a stop distance would be considered a volatility stop loss methodology.

Source: ProRealTime charts, as of  23/09/2014

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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