Technical Tuesday

24 February 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:

Tiger Brands Ltd

PSG Group Ltd

Foschini Group Ltd vs Truworths International Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index has traded to the resistance target at 47150 with only an intraday pullback to note within the last week. The move has taken the price into new high territory and should the price manage to close above the 47150 mark, channel resistance is the new target favoured at 48300 (revised from 47950 last week). 

The Stochastic oscillator in overbought territory for a prolonged period (highlighted red) cautions of a possible consolidation or pullback to follow. However as this signal is against the prevailing trend it holds less relevance than the price action.

Should weakness occur in the short-term (instead of continued gains) trend followers would look to accumulate long, near levels of support, rather than trade against the prevailing uptrend.

Source: ProRealTime charts, as of 24/02/2015

Equities in focus

Tiger Brands Ltd

The price of Tiger Brands has experienced what appears to be a false downside breakout of support at 34570. The price has now formed a bullish candle formation (circled in red) and has since attempted a price rebound.

The Stochastic is now starting to move out of oversold territory in-line with the price rebound. These indications are short-term bullish and a move towards resistance at 37850 is now favoured. Should the price close below the recent low at 34150 the bullish reversal signals will be deemed to have failed. 

Source:  ProRealTime charts, as of  24/02/2015

PSG Group Ltd

The price of the PSG Group looks to be reversing of previous resistance (current support) at 13610. The price rally, which took the share price to the recent high, was supported by increased volume while the pullback from this high occurred on relatively low volume.

This alludes to enthusiasm on the buy side and a lack thereof on the sell side, alluding to the momentum remaining bullish for the share. The Stochastic trading in oversold territory suggests the short-term weakness is perhaps overdone.

These are bullish indications and a move back to the recent high at 14690 is favoured. A price close below support at 13070 would consider the failure of these bullish indications.

Source:  ProRealTime charts, as of  24/02/2015

Foschini Group Ltd vs Truworths International Ltd

The chart considered is that of Foschini (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 (Foschini) has been underperforming security 2 ( Truworths). 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 Foschini, short Truworths. 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. Foschini rising and Truworths falling
  2. Foschini rising faster than Truworths rising
  3. Foschini falling slower than Truworths falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 9.5%. A stop-loss would be considered equal to the anticipated gain of 9.5%.

Source:  ProRealTime charts, as of  24/02/2015

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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