South Africa 40 Cash Index Previous
“Possible short term continuation pattern forming”
In our last note we highlighted the broadening wedge pattern as being a possible top formation, although preferred keeping a market neutral positioning as the uptrend remained in place and the pattern was a difficult one to try trade. The pattern was correct in predicting a near term decline
In the very short term we now have a pennant formation (highlighted red). A pennant is usually considered a continuation pattern in technical analysis and is a function of the recent decline or downtrend from the highs marked with the red arrow. While alluding to a possible downside break out and continuation of the near term downtrend, we prefer to wait for confirmation thereof with a break (close below) horizontal support at 51290. In this scenario 50140 would become the initial target favoured, while a close above the downward trend line might be considered a stop loss or failure indication.
The index is also currently in oversold territory. While this alludes to a possible rebound we favour the near term downtrend at this stage in terms of relevance. Those traders looking for a rebound might prefer waiting for confirmation in the form of the index price instead moving to close above horizontal resistance at 52250. However this scenario would find the next level of resistance relatively close at 52950, providing an unfavourable reward relative to the possible risk of the trade