Technical Tuesdays

25 March 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:

Tiger Brands Ltd

African Rainbow Minerals Ltd vs Anglo America Plc

Wilson Bayly Holmes-Ovcon Ltd

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index has formed what appears to be a double bottom reversal pattern (blue “W” below 42550 level).

Should the price confirm a close above 42550, the pattern would be said to have triggered. A double bottom is considered a reversal pattern as it has a habit of reversing the preceding downtrend, which in this scenario was the short-term move from the recent all-time high.

The recent high at 43400 is favoured as the initial resistance target should the pattern complete, while the double bottom favours a further upside target at 43550. Should the price fail to complete the breakout, the trading range between levels 41400/41600 and 42550 is considered to have resumed.

 

Source: ProRealTime charts, as of 25/03/2014

Equity in focus

Tiger Brands Ltd

The price of Tiger Brands has broken out of an inverse head and shoulders formation.

This formation is considered a reversal pattern as it warns of the preceding downtrend reversing into a new uptrend. Aggressive breakout traders would have found entry as the price traded above the neckline at 26750, while more conservative breakout traders would wait for a retracement towards this level as an opportunity for entry.

Previous resistance at 28200 would provide the initial favoured target. The height from the head (H) to the neckline line, projected from the neckline, arrives at a further target of 28900. The price closing below the right shoulder (R) at 25480 would render the above indications to have failed. 

Source: ProRealTime charts, as of 25/03/2014

African Rainbow Minerals Ltd

The chart considered is that of African Rainbow Minerals with a Relative Strength Comparison (RSC) indicator added. The RSC 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 (African Rainbow) has been underperforming security 2 (Anglo American Plc). 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 African Rainbow, short Anglo American Plc. 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. African Rainbow rising and Anglo American Plc falling
  2. African Rainbow rising faster than Anglo American Plc rising
  3. African Rainbow falling slower than Anglo American Plc falling.

Should one of these scenarios play out successfully, the expectation would be for a net gain of 4.2%. A stop-loss would be considered equal to the anticipated gain of 4.2%.  

Source: ProRealTime charts, as of 25/03/2014

Wilson Bayly Holmes-Ovcon Ltd

The price of WBHO is currently in a sideways consolidation. The sideways movement has taken the form of a triangle pattern.

The 13200 level marks the resistance which would need to be broken before a new uptrend is considered, while the 12790 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 (13700 – 12630 = 1070) and projecting that distance from the breakout level.

Source: ProRealTime charts, as of 25/03/2014

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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