South Africa 40 Cash Index Bear Flag Forming

SA40 Cash Index

The contrarian trade suggestion, although not our preferred scenario, was the correct trade from the previous note (below). The index has continued to rebound and found resistance by the 50239 level, which was also the upside target for the rebound. The red channel highlights the move up which could be setting up as a bear flag formation. Despite the rebound we still consider the trend bias for the index to be down. The move higher has also moved the index back into overbought territory.

For a short entry confirmation signal, we are looking for a break below the lower support of channel (currently 49700). A close below this level, considers 47730 as the next support target. In this scenario a close above the 50490 might be considered the failure level for the trade (should it confirm).

SA40 Cash Index (Previous)

In a dramatic turn of events, the South Africa 40 Cash Index, after trading nearly 2000 points lower from open, managed to offset losses and close the day (4 April 2018) back in positive territory. The candle circled red is commonly known as a “Hammer” formation and highlights the intraday price reversal.

The index price has also closed back above the 48400 level, which means we are currently not looking for short entries anymore, but rather sit in a neutral positioning for now. The neutral positioning is a preference as the rebound from oversold territory conflicts with the longer term trend bias which is still considered down.

However, traders who are contrarian and in turn are prepared to trade against the underlying downtrend, might look to 50239 as the next upside resistance target. Using a close back below 48400 as the failure level.