Technical Tuesday

Technical view

The South Africa 40 cash index closed below the downside breakout level at 44880, before proceeding to crash through the initial downside target at 43830 and realising a short term low at support level, 40730. Since then the index has formed a bullish engulfing candle pattern circled red whilst the Stochastic has ticked out of oversold territory. 

These indications suggest the end of the short term move down and possible rebound to follow. However, at this stage, the trend bias remains to the downside and further gains are needed to restore faith in an uptrend. A bearish price reversal before 43830 would favour further downside with the initial target considered at 41700. 

Traders might consider intraday timeframes to identify such a move. A close above 43830 would suggest the downside momentum has weakened and consider a neutral bias.   

Click here to view South Africa 40 chart

Mondi Limited

The price of Mondi Ltd looks to have reversed the short term decline from its recent high. 

Supporting the price action we see the Stochastic crossing its trigger line in oversold territory whilst displaying a positive divergence with the price (blue lines on indicator and price). Supporting the price action we see the Stochastic crossing its trigger line in oversold territory whilst displaying a positive divergence with the price (blue lines on indicator and price). These are considered bullish indications in Technical Analysis terms, favouring a retest of the recent high at 31785. 

A price close below support at 27989 would consider the failure of the bullish indications. 

Click here to view the Mondi chart

Anglo American Plc vs African Rainbow Minerals Limited

The chart considered is that of Anglo American Plc (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 (Anglo American Plc) has been underperforming security 2 (African Rainbow Minerals). 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 Anglo American Plc Short African Rainbow Minerals. 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. Anglo American Plc rising and African Rainbow Minerals falling
2. Anglo American Plc rising faster than African Rainbow Minerals rising
3. Anglo American Plc falling slower than African Rainbow Minerals falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.5%. A stop-loss would be considered equal to the anticipated gain of 3.5%.  

Click here to view the Anglo American Plc vs African Rainbow Minerals chart

The Foschini Group Limited vs Truworths International Limited

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 back 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 6.5%. A stop-loss would be considered equal to the anticipated gain of 6.5%.  

Click here to view the Foschini Group vs Truworths International chart

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