SA40 cash index review

Index correcting in sideways fashion, looks bullish.

  • In truth not too much has happened on the SA40 index since our last note
  • Rather than extending or reversing gains of recent times, the index has been correcting out of overbought territory by moving sideways
  • As noted in previous notes we view sideways corrections as bullish in markets as it shows a reluctance of selling despite the strong gains preceding
  • The new sideways range is considered between levels 54230 and 53320 and we prefer maintaining a bullish bias to trades
  • We are happy to find long entry between current levels (trend line support) and range support (533320) with the view that further gains are yet to come
  • 54230 is the initial upside target a break of which calling for a move towards channel resistance at 54230
  • From current we are using a relatively tight stop loss in a close below the 52840 level

SA40 Cash index 7 November

1. The index has traded through upside targets of 52750 and 54000, but in truth has not afforded us a long entry opportunity in the form of a pullback

2. The dotted blue trend line shows how the short term trend is accelerating in the near term

3. The next upside target considered (and favoured) is at 54800 (channel resistance), although failing a pullback, we are unwilling to look for long entry at current and maintain a market neutral positioning

4. The accelerating trend is a warning sign of a short term maturity in the move and perhaps we are starting to head towards blowoff territory i.e. an over exuberance in an uptrend before a short term correction occurs

5. This is not to say we are looking to short the current rally, but rather feel that there will be a long opportunity in time at a more favourable, less stretched level than is current

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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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