Technical Tuesday

28 July 2015

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:

Steinhoff International Holdings Ltd

Mediclinic International Ltd

Grindrod Ltd

South Africa 40 index

Technical view

The South Africa 40 cash index has retraced off the 47540 resistance level in the last week to close below the 45850 level, rendering the Inverse Head and Shoulders pattern invalid. The extent of the retracement highlights a weakening of the short-term upward momentum. The last 3 days of price action show no commitment to a direction at present and the price is considered to be in a state of limbo awaiting further catalysts.

These are likely to come in the form of Wednesday evening’s rates announcement and FOMC meeting to follow out of the U.S. A price close below support at 45180 would favour continued downside with 43830 the initial target. For renewed faith in an upside move, a close above resistance at 45850 is needed, however it is preferred that an upside break occurs with a long bodied candle as it reiterates a stronger directional commitment rather than what could be a continuation of the three day consolidation.

The short-term decline has put the index into oversold territory as indicated by the Stochastic oscillator. For the upside scenario it would also be preferred that the indicator turns to cross out of oversold territory or through its trigger line to support the price action.

Click here to view South Africa 40 chart

Equities in focus

Steinhoff International Holdings Ltd

Since breaking out of the triangle consolidation and realising a new all-time high, the share price of Steinhoff has started to pullback and is nearing the previous breakout level at 7605. Pullbacks from new highs as well as pullbacks from initial breakouts are often considered a second opportunity in lure of joining the underlying trend (which in this situation is up).

A retest of the closing high at 7990 is favoured in this scenario. If this level is broken a conservative upside projection from the triangle pattern arrives at a further target of 8295. Should the price continue to retrace and close below the 7435 level the bullish indications would be deemed to have failed. 

Click here to view the Steinhoff International chart

Mediclinic International Ltd

The recent rebound in the share price of Mediclinic International has taken the form of a rising wedge. The pattern alludes to a weak move up following an aggressive move down, suggesting that the momentum remains with the bears.

Furthermore, the rally has occurred on low volume supporting the bearish sentiment evident in the price action. A close below wedge support at 10650 favours further downside with 10015 the initial target. If this level is broken, a move to the next level of support at 9675 is favoured. Should the price continue to gain and close above 11245 the downside momentum would be deemed to have failed.

Click here to view the Mediclinic chart

Grindrod Ltd

Grindrod has formed a triangle consolidation pattern following the long-term decline, which preceded the consolidation. These patterns are referred to as continuation patterns in technical analysis as they have a habit of forming before the resumption of the preceding trend.

It is however prudent to wait for a breakout occur rather than pre-empting the direction thereof. The height of the pattern suggests a proportionate move of 145c in the breakout direction when a breakout occurs. For an upside breakout, a close above 1345 is considered. For a downside breakout, a close below 1250 is considered.

Click here to view the Grindrod chart

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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IG provides an execution-only service. The material on this website does not contain (and should not be construed as containing) investment advice or an investment recommendation, or a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of the above information. Consequently any person acting on it does so entirely at his or her own risk. The research does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. This communication must not be reproduced or further distributed. The price levels provided are derived from ProRealtime Charts (IT-Finance)

South Africa 40 chart

Source: ProRealTime charts, as of 28/07/2015

Steinhoff International Holdings Ltd

Source: ProRealTime charts, as of 28/07/2015

Mediclinic International

Source: ProRealTime charts, as of 28/07/2015

Grindrod chart

Source: ProRealTime charts, as of 28/07/2015

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