SA40 Cash Index Call

SA40 Cash Index overbought but trading in a short term sideways consolidation

Since extending its rally through all of our upside targets, without the opportunity of a pullback for long entry, the index has now given us a few indications that the uptrend may be at least pausing for the time being.

Whilst remaining in overbought territory we also see a shooting star candle pattern (red arrow) and a bearish engulfing candle pattern (circled blue). First and foremost these patterns suggest an end to the short term rally and then the “possibility” of a reversal.

The short term range

The index can move out of overbought territory without the price falling but consolidating sideways instead. At the moment this does appear to be happening and we identify the short term price consolidation between levels 49420 and 49965.

Upside breakout scenario

A close above 49965 would consider an upside breakout and possible long entry opportunity with a target of around 500 points higher (equal to the height of the current consolidation). In this situation traders might consider a stop loss of around 250points, which is half the distance of the upside move expected.

Downside breakout scenario

A close below 49420 might consider a downside breakout scenario. Should this scenario occur this could bring the price towards trend line or horizontal support (48050 to 48260). Trading a downside breakout here is against the trend and would carry a high degree of risk. Traders who take this contrarian approach might consider using a close above the high at 49965 as the failure level whilst targeting the aforementioned support levels.

However, we do still prefer, should the downside breakout occur, waiting for weakness to play out to look for long entry rather than trading short against the longer term uptrend. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain 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 this information. Consequently any person acting on it does so entirely at their own risk. Any research provided 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. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain 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 this information. Consequently any person acting on it does so entirely at their own risk. Any research provided 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. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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