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Article / 20 December 2012 at 15:31 GMT

Africa (AFK) – Indicators signal further upside in 2013

Technical Analyst / Saxo Bank

Trade Parameters

  • Position: Enter at current level or buy on dips
  • Initial stop: A close below 31.00 which means the gap will be closed and short-term trend cancelled
  • Target level: 33.75 – 34.43

AFK an Outrageous Prediction
One of the Outrageous Predictions for next year which was published together with Saxo Bank's Outrageous Predictions 2013 was that the: “African stock market becomes best performing continent (long AFK:arcx)”. I decided to take a look at it to see what the longer term outlook is from a technical point of view. I have not compared it to other continents so this analysis is only about how the 2013 outlook is for AFK.

AFK has already had a good run
At first glance it seems like the market already has reacted to that prediction! After a correction in November the price has gone up the past two weeks and is now close to testing its September/October high.
On the daily chart (see below) Bollinger Bands are widening, relative strength indicator (RSI) and moving average convergence divergence (MACD) are both in bullish mode confirming the overall bullish trend and also indicating further upside.
AFK daily chart
Looking at a weekly chart one can see that AFK had a good run from Q2 this year until it met strong resistance and was rejected at the 0.618 Fibonacci retracement level at around 32.10. The following correction took it down to the 0.382 retracement level of the Q2/Q3 Bull Run at around 30.
The bullish trend then resumed and has taken AFK back to the current level and is set to once again test the resistance level at around 32.10.
AFK Weekly chart

Most indicators and oscillators are bullish
Daily volume has picked up and on both the daily and weekly charts the RSI is bullish and there is no divergence. The daily MACD has been bullish for some time and also weekly it seems to be turning bullish again, both of which developments indicate further upside.

A Golden Cross between 55 and 200 weekly moving averages (WMA) within the next few weeks is adding to the bullish picture.
The only 'blurry'  indicator is the weekly Bollinger Bands.. The bands are contracting although the upper band seems to flatten a bit. AFK needs more upside to widen these bands.

How far can it go?
A break above the 32.10 level could further fuel a bullish move to at least the 0.764 Fibonacci resistance level at around 33.73 but potentially higher to the 34.43 level.  

Risk: There are always political risks in many African countries that can affect stock markets. The long-term trend will be demolished if AFK breaks below 29.75 and the first indication of that could be if AFK is rejected once again at the resistance level of around 32.10.

Non-independent investment research
This investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. 
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