Technical Tuesdays

25 February 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:

Old Mutual PLC vs Nedbank Group Ltd

Mediclinic International Ltd vs Life Healthcare Group Holdings Ltd

Bidvest Group Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The 43000 and 42480 levels represent the high and low from our candle marked with a blue arrow. Although there have been intraday breaches of the high of this candle, the price has failed to close above it. The low of this candle has been tested but not yet breached.

With the above considerations in mind the price action of the SA40 index is considered to be in a short-term period of non-directional movement i.e. a sideways range. The 43100 level represents the intraday breaches of the aforementioned candles high and is now considered resistance. The range is therefore considered between support at 42480 and resistance at 43100.

Range traders would look for a long entry off support with a target considered just below the resistance level. A price close below the support would consider failure of this a range trade off support. Breakout traders would look for a close above resistance for possible entry, with a further upside target equal to the height of the range 620 points (43100 – 42480).

A break of support could trigger a short entry for breakout traders with the same 620 point target. However this scenario would carry an elevated degree of risk as it is contrary to the long-term trend which is still considered as up.

Source: ProRealTime charts, as of 25/02/2014

Equity in focus

Old Mutual PLC vs Nedbank Group Ltd

The chart considered is that of Old Mutual (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 (Old Mutual) has been underperforming security 2 (Nedbank).

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. Old Mutual Short Nedbank.

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. Old Mutual rising and Nedbank falling
  2. Old Mutual rising faster than Nedbank rising
  3. Old Mutual falling slower than Nedbank falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3%. A stop-loss would be considered equal to the anticipated gain of 3%.

Source: ProRealTime charts, as of 25/02/2014

Mediclinic vs Life Healthcare Group

The chart considered is that of Mediclinic (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 (Mediclinic) has been underperforming security 2 (Life Healthcare). 

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 Mediclinic Short Life Healthcare. 

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. Mediclinic rising and Life Healthcare falling
  2. Mediclinic rising faster than Life Healthcare rising
  3. Mediclinic falling slower than Life Healthcare falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 4%. A stop-loss would be considered equal to the anticipated gain of 4%.

Source: ProRealTime charts, as of 25/02/2014

Bidvest Group Ltd

The price of Bidvest is currently in a sideways consolidation ahead of its interim results.

The sideways movement has taken the form of a triangle pattern. The 24450 level marks the resistance which would need to be broken before a new uptrend is considered, while the 23770 level marks the support which would need to be broken before a new downtrend is considered.

Should one of the aforementioned breakouts occur, a target from the pattern is derived from measuring the height of the pattern (24800 – 23600 = 1200) and projecting that distance from the breakout level.

Source: ProRealTime charts, as of 25/02/2014

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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