Technical Tuesday

29 September 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:

Pioneer Foods Ltd

Famous Brands Ltd

Life Healthcare Holdings Ltd vs Mediclinic International Ltd

South Africa 40 index

Technical view

After finding a few days of support on the 44460 breakout level, the  South Africa 40 cash index has drifted lower to the trend line support (dotted black line). Bullish reversals over the last week have failed to hold up and there have been no significant gains to follow.

The extension of the pullback suggests a weakening of the upward move. Due to this occurrence, rather than waiting for a bullish price reversal before committing to further gains, a breakout methodology is favoured. A close above the blue channel’s resistance line considers the breakout favouring continued gains to 46500.

In this scenario, the short term low of the current pullback would be used as a failure level. Should a breakout not occur and the price drift lower to close below 42900, renewed downside becomes favoured with the initial support target considered at 42030.

Click here to view South Africa 40 chart

Equities in focus

Pioneer Foods Ltd

The share price of the Pioneer Foods Ltd has consolidated into a falling wedge formation after having reached new high territory. The falling wedge pattern highlights a slow cumbersome move down, after an aggressive move up, alluding to the momentum for the share as remaining bullish.

Further gains are favoured in line with the longer-term uptrend. The long-term uptrend is considered while the price trades firmly above the 200-day simple moving average (200MA). The initial resistance target favoured is located at 20050, a break of which further favours a move to resistance of the recent high at 20745. A close below wedge support at 18965 would consider the failure of the bullish indications. 

Click here to view the Pioneer Foods chart

Famous Brands Ltd

After pulling back from a recent high, the price of Famous Brands looks to be resuming the long-term uptrend. The long-term uptrend is considered as the price remains firmly above the 200-day simple moving average (200MA).

The Stochastic is moving out of oversold territory whilst displaying a positive divergence with the price (red lines on price and indicator). These are bullish indications and a move to resistance between levels 13715 and 13910 is favoured. A close below the low at 12540 would consider the failure of the bullish indications.

Click here to view the Famous Brands chart

Life Healthcare Holdings Ltd vs Mediclinic International Ltd

The chart considered is that of Life Healthcare (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in ratio format. The RSC has experienced a decline in value recently which highlights that security 1 (Life Healthcare) has been underperforming security 2 ( Mediclinic International).

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 Life Healthcare, short Mediclinic International.

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. Life Healthcare rising and Mediclinic International falling
  2. Life Healthcare rising faster than Mediclinic International rising
  3. Life Healthcare falling slower than Mediclinic International falling.

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.6%. A stop-loss would be considered equal to the anticipated gain of 4.6%.  

Click here to view the Life Healthcare vs Mediclinic International 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 29/09/2015

Pioneer Foods Ltd

Source:  ProRealTime charts, as of 29/09/2015

Famous Brands Ltd

Source:  ProRealTime charts, as of 29/09/2015

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