Article / 12 July 2016 at 11:30 GMT

South Africa Watch: Risk sentiment driving the rand

Head of Private Sales / Saxo Capital Markets - South Africa
South Africa
  • South African stocks trading in line with European, UK indices
  • Correlation deviations mainly down to risk-on driven rand strength
  • BHP Billiton chart not showing volume for upside breakout

BHP Billiton
Shares of mining giant BHP Billiton appear to be at a crossroads. Photo: iStock 

By Dylan Bester

Watch me talk about global markets and current sentiment today, July 12 at 1630 (UTC+200) on CNBC Africa.

Having a look at market breadth:

Momentum 12th

Momentum up and down shows the previous day's Top40 stock direction and short-term moving average direction.

Advancing and declining stocks in the Top40 shows the amount of stocks for the previous day that have closed higher or lower overall.

Momentum in our local market has been determined by indices in the UK and Europe over the last week. We have essentially been following their trends, but have in some cases posted much stronger/weaker days against European markets. This is due to the current strength in the rand, which is being supported by the risk-on environment.

Overall momentum is still down; the amount of advancing stocks yesterday was 81% which supports the overall risk-on environment. This trend, however, is operating in the shorter term as volatility and uncertainty remain high.

Technical event triggered in MTN Group (MTN:xjse):
MTN 12th July

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Source: Saxo Bank 

MTN Group caught in a sideways channel

Momentum: The medium-term view is still down overall, short-term is sideways and rangebound.

Risk: Average true risk has dropped and daily swings are around R6 maximum.

Stochastics: Mixed around 55 level and not showing overbought or oversold ranges, confirms current ranging.

Volume: Declining volumes are showing less interest and massive uncertainty in commitment for this stock .

Chart: Tested resistance recently at R150, near-term support at R128.50 and further support lower at the R124 level.

A technical look at BHP Billiton:
BIL 12th July
Source: Saxo Bank 
BHP Billiton flag formation following long-term downtrend

Momentum: Sideways and caught in flag formation which is squeezing price sideways.

Risk: Average true range over a weekly basis does indicate a lot of volatility in this stock, break below glag support line.

Stochastics: Below 50 and crossover on a medium term outlook, shows possible move towards 80.

Volume: Dropped rapidly in this last few weeks in the wake of Brexit and uncertainty, no confirmation of volume for upside potential.

Chart: With the squeeze on price a break of the upside channel could present an opportunity toward resistance at R225,05, this confirms 38.2% Fibonacci retracement level.

Last week's trade update:

Top40 (ZA40.I): After testing and breaking through the mentioned support last week at 45,000, the lows made where 44,421 and bounced upwards and following through with support from Asian market gains this morning. 

Resistance is around 46,000 and the resistance given upside advancing stocks should be 46,300.

— Edited by Michael McKenna

Dylan Bester is a trader on Saxo Bank's South Africa desk


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