SA40 Cash Index Review

South Africa 40 Cash Index, downside breakout and trend continuation.

The pennant pattern highlighted in the last note has been accurate in its assumption that the near term downtrend was looking to continue. Furthermore the index price has broken the key support level at 51290 (marked with the black arrow) to initiate short positioning. From current, a move to the next level of support at 50140 is favoured. Traders of the pattern and downside breakout might consider using a close above 51850 (trend line and pennant resistance) as the failure level for the trade. 

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

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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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