Technical Tuesdays

29 April 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:

Old Mutual vs Nedbank

Pinnacle technologies

Steinhoff

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Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

South Africa 40 index appears to have had a false breakout of the resistance from last week’s range as the price returned back below the 43820 level. Circled in blue is a bearish engulfing candle pattern indicating  a short-term change in direction alluding to further near term weakness.

The Stochastic oscillator is in overbought territory and showing a negative divergence with the price (red trendline on indicator and price). Bearish or negative divergence occurs when the price activity continues to make new highs, while the highs on the indicator fails to do so.

The above indications are negative in the short-term and favour a move back towards support at 42800. It should be noted that today’s intraday candle can change before the close of trade today and if the close is back above resistance at 43820, further upside would once again be favoured with trendline resistance at 44430 the initial target.

 

Source: ProRealTime charts, as of 29/04/2014

Equity in focus

Old Mutual vs Nedbank

The chart considered is that of Old Mutual (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 (Old Mutual) has been underperforming security 2 ( Nedbank). Bollinger Bands have been added to the RSC and highlights 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 Old Mutual Short Nedbank. 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. Old Mutual rising and Nedbank falling
  2. Old Mutual rising faster than Nedbank rising
  3. Old Mutual falling slower than Nedbank s falling. 

Should one of these scenarios play out successfully the expectation would be a net gain of 3%.

Source:  ProRealTime charts, as of 29/04/2014

Pinnacle Technologies

Pinnacle has broken out of a triangle consolidation pattern and is looking to continue the preceding downtrend. The recent low at 1170 was the recent support and becomes the initial target favoured from the pattern breakout.

Should this support level be broken a further downside target is derived by measuring the height of the pattern and projecting a proportionate distance from the breakout area to arrive at 1090.

Should the price rebound and close above 1450 the bearish indications would be deemed to have failed.

Source:  ProRealTime charts, as of 29/04/2014

Steinhoff

Steinhoff has broken out of a triangle consolidation pattern and is looking to continue the preceding uptrend.

The price is currently pulling back towards the breakout level at 5360 which could afford entry for those breakout traders who missed the initial breakout entry.The height of the pattern projected from the breakout level arrives at a target of 5800c a share.

Should the price retrace to close below support at 5150 the bullish indication would be deemed to have failed.

Source:  ProRealTime charts, as of 29/04/2014

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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