Technical Tuesdays

30 September 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:

Sappi Ltd

MTN Group Ltd vs Vodacom Group Ltd

Discovery Ltd

View market data

Company data

Dividends

Economic catalysts

South Africa 40 index

Technical view

The South Africa 40 cash index has continued to weaken and now trades below the 200 day simple moving average (blue line). The long-term trend is no longer considered up using this metric. It is however premature to consider the long term trend as down at this stage.

Previously we have seen downside breaks of the 200MA (circled red), promptly followed by accumulation of the index. However, we have seen no clear sign that the short term weakness is reversing and with this reason, the projected downside target from the preceding week’s range remains favoured at 43065. 

 

Source: ProRealTime charts, as of 30/09/2014

Equities in focus

Sappi Ltd

The price of  Sappi has formed a bullish engulfing price reversal (circled black), which alludes to the end of the price pullback from the new high. The Stochastic has crossed its trigger line in oversold territory whilst displaying a positive divergence with the price.

Positive divergence is considered when the price is making higher lows while the indicator has made lower lows. All these indications are considered short-term bullish, and a move towards recent all-time high resistance is favoured.

The price closing below the trend-line support at 4110 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  30/09/2014

MTN Group Ltd vs Vodacom Group Ltd 

The chart considered is that of MTN (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 (MTN) has been underperforming security 2 ( Vodacom).

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 MTN, short Vodacom.

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. MTN rising and Vodacom
  2. MTN rising faster than Vodacom
  3. MTN falling slower than Vodacom

Should one of these scenarios play out successfully the expectation would be for a net gain of 4.5%. A stop-loss would be considered equal to the anticipated gain of 4.5%.  

Source: ProRealTime charts, as of  30/09/2014

Discovery Ltd

The price of Discovery looks to be reversing back up, after the recent pullback experienced from all-time closing high. The Stochastic has crossed its trigger line in oversold territory, whilst displaying a positive divergence with the price.

Positive divergence is considered when the price is making higher lows while the indicator has made lower lows. These indications are considered short-term bullish and a move towards recent all-time high resistance at 10395 is favoured.

The price closing below horizontal support at 9390 would consider the failure of the bullish indications.

Source: ProRealTime charts, as of  30/09/2014

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

 

 

Try our platform

Follow one of the links below for a quick look at our web-based platform and the range of markets on offer.

Domestic account

  • Explore our platform with no login
  • Search for your favourite shares and open deal tickets
  • Access charts and technical analysis tools

International account

  • Explore our platform with no login
  • Search for your favourite shares and open deal tickets
  • Access charts and technical analysis tools

Open a demo

If you're interested in finding out more about the range of markets available and the functionality of our trading platform, you can open a demo account. 

Domestic account

  • Trade with R100,000 practice funds for two weeks
  • Access charts and view our range of local markets
  • Trade online or via our mobile apps

International account

  • Trade with £10,000 practice funds for two weeks
  • Access charts and view live prices
  • Trade online or via our mobile apps

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)

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.