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.
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