Technical Tuesday

24 November 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:

Netcare Ltd vs Mediclinic International Ltd

Clicks Group Ltd

Spar Group Ltd

South Africa 40 index

Technical view

Over the last week,the South Africa 40 cash index continued to find resistance around the 47100 level and failed to extend gains or losses. The long wicks on the candles marked with the black arrows show price rejection at the short-term highs and the short-term lows. A short-term consolidation is now considered between levels 46200 and 47220. Traders might consider waiting for a price close above the resistance or below the support of this range for a renewed directional bias.

Click here to view South Africa 40 chart

Equities in focus

Netcare Ltd cs Mediclinic International Ltd

The chart considered is that of Netcare (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in ratio format. The RSC has experienced a decline in value recently which highlights that security 1 (Netcare) has been underperforming security 2 (Mediclinic).

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 Netcare Short Mediclinic.

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. Netcare rising and Mediclinic falling
  2. Netcare rising faster than Mediclinic rising
  3. Netcare falling slower than Mediclinic falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.4%. A stop-loss would be considered equal to the anticipated gain of 4.4%.  

Click here to view the Netcare vs Mediclinic chart

Clicks Group Ltd

The Clicks Group has recently experienced its first pullback since reaching an all-time high in early November 2015. The pullback has occurred on relatively low volume suggesting a lack of enthusiasm on the sell side.

The black arrow marks a single candlestick bullish reversal off the 200-day simple moving average (blue line labelled 200MA). The Stochastic has recently crossed out of oversold territory supporting the candlestick reversal. The recent closing high at 10600 is the initial upside target favoured, while a close below the short-term low at 9250 would suggest the failure of the bullish indications.

Conservative swing traders might prefer to wait for a price close above the blue trend line before committing to renewed gains, while more aggressive swing traders might find themselves already involved.

Click here to view the Clicks chart

Spar Group Ltd

The Spar Group has formed a small triangle or pennant shaped consolidation following the short-term decline from its recent all-time high. The pattern is considered a continuation pattern as it has a habit of occurring before the preceding trend is continued.

In this context the pattern serves as a function of the short term decline. A breakout in either direction is however possible, and it is therefore prudent to wait for a breakout to confirm. The long-term channel supports the view of a longer-term uptrend.

Should a downside breakout occur (close below 18640) traders might respect the long-term uptrend and wait for weakness to play out before looking for long entry near channel support at 18000, in anticipation of renewed gains to follow. Should an upside breakout occur with a close above the resistance of the pattern at 19240, the closing high resistance at 20500 becomes the initial target favoured.

Click here to view the Spar 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 24/11/2015

Netcare vs Mediclinic

Source: ProRealTime charts, as of 24/11/2015

Clicks Group Ltd

Source: ProRealTime charts, as of 24/11/2015

Spar Group Ltd

Source: ProRealTime charts, as of 24/11/2015

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