Weekly Technical Analysis – 25 January 2022

  • South Africa 40 Cash Index

The South Africa 40 Cash Index has now reached our confluence of support at 66645.

For new long positions, we would like to see the price close back above the 66645 level. In this scenario, we would look for a retest of the high at 70150.

As long as the price is below the 66645 level, 64690 could be another downside target (followed even by the 63050 level). Our uptrend shows some vulnerability, but we are not ready to sell the index yet. To go short, the index must first fall further and then bounce back towards resistance.

For now, we prefer to wait out the long trade scenario.

Traders will be aware of the near-term catalysts for volatility this week in the form of U.S. data, namely the Federal Open Market Committee (FOMC) meeting and the US GDP print.

 

  • Spot Gold

The price of dollar-denominated gold remains in broad sideways consolidation. However, in the short term, an uptrend can be seen as the price has now broken through resistance at 1830.

Traders who are on the long side could see 1875 as the first resistance target. A close below 1810 could serve as a stop loss indication for this trade, although traders need to weigh the merits of a relatively low risk/reward ratio for the current setup.

 

  • USD/ZAR

Last week’s bullish reversal just above the 15.15 level for the USD/ZAR has failed. Instead, price has continued to decline and is now finding trendline support near the 15.00 level.

Circled in blue, we again see a bullish price reversal formed out of the oversold area. 15.50 and 16.05 are the preferred upside targets for this reversal. Traders speculating on rising prices could use a close below 15.00 as a stop loss indicator for this trade.

 

  • Brent Crude Oil

The price of Brent Crude is currently consolidating around the high at 85.90, with channel resistance revised to 93.80 offering another resistance target to the upside should the short-term trend resume to coincide with the longer-term trend.

The long-term trend for crude oil remains upward, although the price is currently trading in the overbought zone.

Our preferred approach to oil trading is to wait for a correction out of the overbought area before going long in line with the prevailing uptrend.

 

  • AngloGold Ashanti vs Gold Fields (pair).

In this pair, a long position in AngloGold Ashanti is matched against a short position in Gold Fields. The net result of these combined trades provides for a profit margin of 3.5%. A stop loss is considered equal to the expected profit.

A successful pair trade can be realised in 1 of 3 ways:

The long position rises while the short position falls.
The long position rises faster than the short position rises
The short position falls faster than the long position falls.
The blue line on the chart represents the AngloGold/Gold Fields ratio, which recently traded more than 2 standard deviations below the mean (middle line). A successful trade would require the ratio (blue line) to revert back to the mean in order to reach the given profit target of 3.5%.

 

  • Northam Platinum vs. Newgold Platinum ETF (pair)

The pair considers a long position in Northam Platinum versus a short position in Newgold Platinum ETF. The net result of these combined trades seeks a profit margin of 3.5%. A stop loss is considered equal to the expected profit.

A successful pair trade can be realised in 1 of 3 ways:

The long position rises while the short position falls.
The long position rises faster than the short position rises
The short position falls faster than the long position falls.
The blue line on the chart represents the ratio between Northam and Newgold Platinum ETF, which was recently more than 2 standard deviations below the mean (middle line). For a successful trade, the ratio (blue line) would need to revert to the mean in order to reach the given profit target of 5.25%.