Technical Tuesday

8 October 2019

Our weekly technical report is compiled by in-house senior market analyst, Shaun Murison.

Shaun has worked in financial markets for over ten years. As market analyst, he presents our CFD trading seminars around the country. In addition, Shaun is a regular commentator on the local financial markets, contributing to various media (such as CNBC Africa and Business Day) and writing daily and weekly market reports. He is a registered person at the JSE as well as a Certified Financial Technician (CFTE).

You can follow Shaun on Twitter at @ShaunMurison_IG for regular market updates and insight.

In the report this week, we look at the South Africa 40 index, key indicators, and the following equities:

  • Standard Bank vs Firstrand Ltd

  • Kumba Iron Ore vs Exxaro Resources

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South Africa 40 Index

  • The South Africa 40 Cash Index look to have produced a new bullish price reversal off support as it breaks the short-term downward trend line (circled red)
  • The price reversal is supported by the stochastic crossing out of oversold territory
  • These technical indications assume a range trading opportunity with 50750 the initial upside resistance
  • Traders of the bullish price reversal might consider keeping a relatively tight stop loss at a close below the two-day low (47900), in lieu of the upcoming US China trade talks (commencing Thursday)

Please note the South Africa 40 Cash Index is expected to adjust for a dividend currently estimated at 51 points on Tuesday evening (8 October 2019).

SPAR Group

The share price of Spar has recently broken out of a triangle consolidation (circled red). The breakout suggests that the uptrend which preceded the triangle consolidation is now being continued. The height of the pattern projected from the breakout point arrives at an upside target of 20230. Should the share price instead move to close below the support of the triangle at 18750, the bullish breakout would be deemed to have failed.

Standard Bank vs Firstrand

The chart considered is that of Standard Bank(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 (Standard Bank) has been underperforming security 2 (Firstrand). 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 Standard Bank Short Firstrand. The target from the technical indications would be for the RSC to move back towards the 40MA (red line) which is regarded as the mean. This could occur with the price movements of the securities in a number of ways;

  1. Standard Bank rising and Firstrand falling
  2. Standard Bank rising faster than Firstrand rising
  3. Standard Bank falling slower than Firstrand falling

Should one of these scenarios play out successfully the expectation would be for a net gain of 5.3%. A stop-loss would be considered equal to the anticipated gain of 5.3%.

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