Travelling Technicals with Global Indices: JSE Top 40

Today's technical analysis focuses on a stock market that's prevalent in Africa and plays a pivotal role in developing a positive image for the rest of the nations on the continent by showcasing the wealth of opportunities that lie in lands that have struggled to garner long term capital inflows due to an unfavourable investment climate or lack of mechanisms needed for the process to take place. 

The Johannesburg Stock Exchange began its life when gold was discovered in the then region of Transvaal, more specifically Johannesburg. Prospectors needed capital to fund their mining explorations and productions which shifted the demand for high levels of capital upwards prompting a public stock exchange to be formed to provide the necessary funding. 

At present the exchange is the biggest in Africa and lists a number of big name global companies that hold close to the heart of South Africa having formed their origins in the country. Some companies people might be familiar with are SABMiller, Anglo American and Sasol having all had listing on the JSE before going abroad and placing their primary listings overseas.

This is partially the reason why the JSE Top 40 and the JSE All Share Index has seen a fabulous run as these companies report earnings in a foreign currency such as US Dollars or Euros. Couple this with a weak Rand and valuations soar at a blistering rate. 

Let's get to the charts:

Monthly

The long term uptrend remains intact for now with the past years price action best described as lethargic. The momentum which drove the index up seems to have lost it's steam support and resistance of 42 000 and 49 000 holding each side back respectively. Not much upside action has taken place however the downside has produced some interesting patterns. 

I've highlighted with an orange rectangle the long tails that price action exhibits when a selloff is experienced. A handful of candles each attempted to break downwards with much vigour but were met with strong retort from the bulls leaving an element of bounce about the move. 

On the RSI, a momentum indicator, I noticed the neatness of the indicator to hold above the 50 mark. This would imply that the upside momentum has sustained itself well however there's been three points where its tested that mark and bounce up strongly. If we were to see a deciding break on this indicator I think it could suggest the end of this trend. 

Having said that the trend has been in place for a number of years and is becoming vulnerable to wild movements being experienced in world markets. Either way the resolution of this sideway price pattern will yield a significant move in both directions. 

Weekly

The weekly shows the same sideway pattern with important moving averages placed on top namely the 50 SMA and the 200 SMA. Price has zig-zagged through the 50 SMA in a to and fro motion. I also noticed it provided a degree of polarity. When above it rallied to the resistance and when below dropped to the support. Take note of the 200 SMA which is slowly gaining ground on the price with the difference between the two narrowing to levels last seen in 2011. 

Price has found itself stuck between both moving average and it would be best to wait until it lies above or beneath both to establish a direction. Until then we'll continue to see lethargic movement which highlights the importance of a need for a break for directional traders.