Technical Tuesdays

19 August 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:

BHP Billiton Plc (SA)

Cie Financiere Richemont (SA) 

Standard Bank Group vs Barclays Africa Group

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 cash index guidance from last week remains the same, in that the price is within a large trading range between levels 45050 and 47160 and we recognise the possible (not completed) head and shoulders formation (labelled L, H, R).

The short-term rebound from support has formed a rising wedge formation (red lines). Circled blue, we have a bearish engulfing candle pattern (not yet confirmed with a close). The wedge and bearish engulfing are bearish indications and would favour short-term weakness.

The initial support target from the wedge is 45850, which if broken further favour a test of the recent low at 45050. A close above wedge resistance at 46750 would consider the wedge’s bearish indications to have failed.

 

Source: ProRealTime charts, as of 19/08/2014

Equities in focus

BHP Billiton Plc (SA)

BHP Billiton is currently breaking out of a head and shoulders formation (labelled L, H & R). The pattern would need to close below the breakout level of 35500 for the pattern to be considered relevant.

The height of the pattern projected from the breakout level (dotted red lines) arrives at a proportionate downside target of 33400, while the price trading above the right shoulder (labelled R) at 37000 would consider the failure of the pattern.

The long-term trend remains up, as the price remains firmly above the 200 day simple moving average (blue line). With this in mind, trading short would be against the long-term trend and considered a contrarian trade. Trend followers may wait for short-term weakness to play out before finding entry in line with the long-term trend. 

BHP Billiton released their full-year results today, to the disappointment of investors. Read more on the results here.

Source: ProRealTime charts, as of  19/08/2014

Cie Financiere Richemont (SA) 

Richemont is currently breaking out of an inverse head and shoulders formation (labelled L, H & R). The pattern would need to close above the breakout level of 10250 for the pattern to be considered relevant.

The height of the pattern projected from the breakout level (vertical dotted red lines) arrives at a proportionate upside target of 10570, while the price trading below the right shoulder (labelled R) at 10045 would consider the failure of the pattern.

Source: ProRealTime charts, as of  19/08/2014

Standard Bank Group vs Barclays Africa Group

The chart considered is that of Standard Bank (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 (Standard Bank) has been underperforming security 2 (Barclays Africa). 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 Standard Bank Africa, short Barclays Africa.

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. Standard Bank rising and Barclays Africa falling
  2. Standard Bank rising faster than Barclays Africa rising
  3. Standard Bank falling slower than Barclays Africa falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 3.3%. A stop-loss would be considered equal to the anticipated gain of 3.3%.

Source: ProRealTime charts, as of  19/08/2014

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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