Technical Tuesday

30 June 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:

Capitec Bank Holdings Ltd vs PSG Group Ltd

Sasol Ltd

Impala Platinum Holdings vs Anglo American Platinum Ltd

Technical view

The South Africa 40 cash index reached a high of 47540, falling marginally short of the 47700 upside target, before forming a bearish engulfing candle pattern (circled blue). The gap down to follow (between levels 46860 & 46550) highlights the enthusiasm of short-term selling  amidst the macro uncertainty pertaining to a possible “Grexit”.

The guided trailing stop level at 46350 has now triggered as the price closed below the level. The most recent candle resembles a spinning top which is a confirmation of price uncertainty. 

For renewed faith in further upside, the price would need to close above gap resistance at 46860 in which circumstance a retest of the recent high at 47540 is favoured. For further downside we await a close below the previous day’s low at 45970, in which case the initial support target at 45375 is considered.

Click here to view South Africa 40 chart

Capitec Bank Holdings Ltd vs PSG Group Ltd

The chart considered is that of Capitec (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 (Capitec) has been underperforming security 2 (PSG Group).

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 Capitec Bank, short PSG Group. 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. Capitec rising and The PSG Group falling
2. Capitec rising faster than The PSG Group
3. Capitec falling slower than The PSG Group

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.5%. A stop-loss would be considered equal to the anticipated gain of 5.5%.

Click here to view Capitec vs PSG chart

Sasol Ltd

The price of Sasol has broken out of a double bottom formation (blue “W”). The pattern alludes to the preceding downtrend as starting to reverse into a short-term uptrend. The height of the pattern projected from the breakout level predicts an upside target at 46760. A close below trend line support at 42500 would consider the failure of the bullish reversal pattern.

Click here to view Sasol chart

Impala Platinum Holdings Ltd vs Anglo American Platinum Ltd

The chart considered is that of Impala (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 (Impala) has been underperforming security 2 (Amplats).

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 Impala, short Amplats. 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. Impala rising and The Amplats falling
2. Impala rising faster than Amplats
3. Impala falling slower than Amplats

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.9%. A stop-loss would be considered equal to the anticipated gain of 4.9%. 

Click here to view Impala vs Amplats chart

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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