Technical Tuesdays

27 May 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:

MMI Holdings Ltd vs RMI Holdings

African Bank Investments Ltd

Shoprite Holdings Ltd

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 index has moved into a short-term trading range between levels 44750 and 45050. 

The range is considered as the price is failing to make new highs or new lows in the near-term. The long-term trend remains up. Range traders would look for a long entry near support at 44750, for a move towards resistance at 45050. Breakout traders would look for a close above 45050 for long entry anticipating a move towards channel resistance at 45300. 

Trend followers would look for long entry: off support at 44750, a break above 45050, or alternatively, if a downside breakout was to occur, use channel support at 44350. With all scenario’s an upward bias is preferred due to the upward nature of the long-term trend.

Source: ProRealTime charts, as of 27/05/2014

Equity in focus

MMI Holdings Ltd vs RMI Holdings

The chart considered is that of MMI Holdings (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 (MMI Holdings) has been underperforming security 2 ( RMI Holdings).

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 MMI Holdings, short RMI Holdings.

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. MMI Holdings rising and RMI Holdings falling
  2. MMI Holdings rising faster than RMI Holdings rising
  3. MMI Holdings falling slower than RMI Holdings 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 27/05/2014

African Bank Investments Ltd

The price of African Bank looks to have broken out of a bearish flag formation.

The pattern alludes to a weak move up after a strong move down, suggesting that the price momentum remains negative. The recent low at 765 provides the initial downside target favoured.

Should the price find renewed strength and close above resistance at 970, the aforementioned indications would be deemed to have changed.

Source:  ProRealTime charts, as of 27/05/2014

Shoprite Holdings Ltd

Since rallying above the 200 day simple moving average (200MA), the price of Shoprite has experienced its first significant retracement.

The retracement has taken the form of a falling wedge. In the current context this pattern highlights a strong move up followed by a cumbersome move down, alluding to the momentum remaining bullish. The stochastic oscillator is now starting to move out of oversold territory which suggests a possible rebound in price. The falling wedge and stochastic indications are considered bullish and are in line with the long-term trend which is now considered up.

A move towards initial resistance is favoured, while the price closing below the 200MA at 16290 would deem the bullish indications to have failed.

Source:  ProRealTime charts, as of 27/05/2014

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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