Technical Tuesday

24 March 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:

FirstRand Ltd vs Standard Bank Group Ltd

Pioneer Foods Ltd

SABMiller Plc (SA)

South Africa 40 index

Technical view

The South Africa 40 cash index has confirmed a bullish reversal from last week and traded through the 46500 resistance level. The previous high at 47410 once again confirms as the near-term target favoured.

The pullback from 47410 to 44500 now sees these respective levels as key relative to the future health of the index. 

While break above 47410 would favour further gains and confirm the larger 49840 target from previous weeks as relevant once again, a close below 44500 would suggest failure swing from the move up and consider a near term reversal of trend.

Source: ProRealTime charts, as of 24/03/2015

Equities in focus

FirstRand Ltd vs Standard Bank Group Ltd

The chart considered is that of FirstRand (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 (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
  3. FirstRand falling slower than Standard Bank

Should one of these scenarios play out successfully, the expectation would be for a net gain of 6.5%. A stop-loss would be considered equal to the anticipated gain of 6.5%.

Source: ProRealTime charts, as of  24/03/2015

Pioneer Foods Ltd

Pioneer Foods is breaking out of a symmetrical triangle formation and is now showing its intent in terms of continuing the uptrend, which preceded the consolidation pattern.

The volume through the consolidation has been significantly high on the days with positive closes supporting the bullish momentum present in the price activity. The height of the pattern projected from the breakout level arrives at an upside target of 18450, while a close below support at 16575 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  24/03/2015

SABMiller PLC (SA)

SABMiller has started to break down following a double top reversal pattern (blue “M”). This warns of a short-term reversal of the preceding move up. The height of the pattern projected from the breakout level of 65600 arrives at a downside target of 63000.

A close above 67000 would consider the failure of the bearish indication. The long-term trend does however remain up and trend followers might prefer using weakness (should it occur) as an opportunity for long entry over trading contrary to this trend. 

Source: ProRealTime charts, as of  24/03/2015

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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