CHARTS POST 1

JSE WHL

WHL Weekly Chart

WHL like most of the JSE retailers has seen a significant sell off in the last few weeks. Looking at both the daily and weekly charts the share is showing to be highly oversold. Looking at the weekly stochastics it is apparent that the stochastics are grouped in the buy zone with a bullish intersection. The weekly share price has also now tested the long term support level and reached the 100% extension level. Looking at the final two weekly candle sticks a piercing line pattern can be identified with tails showing buyers coming in to hold the price up.The P/E is also histrionically relatively low at 15.13. As long as the share holds above  65.20 the chart is looking bullish

JSE NPN

JSE NPN Weekly chart

NPN is another share that has seen a significant pull back to its ultra long term trend line. The daily and weekly charts are very oversold with a weekly bullish intersection on the fast stochastic. Will look to go long and remain bullish above a weekly close of R1987. The last 2 candle sticks also depict a classic reversal formation . Targets are as seen in the graph.

JSE REI

JSE REI Weekly chart

Another share that is seriously oversold! Looking at the weekly chart the stochastics are heavily grouped in the buy zone and the RSI is showing a bullish cross with its moving average. The share price its self has also pulled back to the significant double support intersection level at R26.50. A close above the 200MA will confirm this bullish sentiment. Target 1 is to the 200MA level at R28.07 above this and target 2 is R29.15 and target 3 is R30.92

JSE NPN

JSE REI Weekly chart

Another share that is seriously oversold! Looking at the weekly chart the stochastics are heavily grouped in the buy zone and the RSI is showing a bullish cross with its moving average. The share price its self has also pulled back to the significant double support intersection level at R26.50. A close above the 200MA will confirm this bullish sentiment. Target 1 is to the 200MA level at R28.07 above this and target 2 is R29.15 and target 3 is R30.92

SILVER A COMMODITY TO WATCH 

When looking at sectors/shares/commodities that could be strong to the future one of my picks is silver. We all know that the world is becoming more conscious of promoting clean energy and moving away from fossil fuels. Bellow is an extract from a website discussing silvers use in solar energy. 

"What many don’t know is that silver is a primary ingredient in the photovoltaic cells that catch the sun’s rays and transform them into energy. 90 % of crystalline silicon photovoltaic cells (the most common cell) use silver paste and close to 70 million ounces of silver are projected for use by solar energy by 2016." - https://www.silverinstitute.org/site/silver-in-technology/silver-in-green/solar-energy/

Silver is currently trading well off its all time high of 50.00. Although the share has seen some significant movement in the last couple of days the large inverse head and shoulders full target has not been reached. The chart is in a hard state to reach for a very accurate buy level, but at around 19.14 I think it is looking good. First target there after is 21.89. For long term buyers that like silver 19.14 is looking like a good level.

JSE CFR

CFR Weekly Chart

One of the JSE top blue chips stocks CFR has not been performing well for a number of weeks now. Looking at the chart the next support level is looking to be 76.80. At this point the share will be extremely oversold and will be looking good for a buy. Both indicators are also in the buy zone.

JSE SBK

SBK Daily Chart

Target set has now been reached and the share is looking bullish once again.

JSE SBK Daily Chart

Share price failed to break out of the ascending channel with the resistance level holding. The share price now looks to be retracing back to the channel support. The target level is the channel support and 200MA level of R130.91. After the target level is reached the outlook is bullish with a large gap still open between R144.55 and R147.77. Looking at the P/E the share is trading at a relatively low value of 9.56 when compared to its historical P/E value.

Copper Chart

Copper Daily Chart.

The Copper price has seen movement to re-test the support and is forming a nice consolidation at this level. Looking at the bigger picture the Copper price seems to be in the process of forming a large bullish inverse head and shoulders pattern. Looking at the indicators they to are confirming this bullish sentiment with the stochastics in the buy zone and the RSI showing a bullish cross with its moving average. As long as the support holds the target levels show in the graph will remain.

JSE VOD

VOD Daily Chart

After seeing a significant pull pack VOD is now starting to look bullish. The share has pulled back to the support level and looks to have held. A close above the 200MA will be the confirmation of the trend change. Looking at the indicators they are showing that the share is very oversold. A hold above the support level will target the 2 levels shown in the graph.

JSE IMP

IMP Daily Chart

Full target has been reached. Looking at the chart now the share is looking to be potentially bullish with the candle sticks pulling back to the ascending support level and showing a consolidation. As long as this support level of 59.29 holds the bullish target of 70 will remain. It must be noted however that the stochastics are not yet grouped in the buy zone but the RSI is looking to be wanting to intersect with its moving average forming a bullish crossover.

   JSE IMP Daily Chart

   The share price just a few cents off the first target.

JSE IMP DAILY CHART

The plat shares have had an unbelievable rally in the last couple of days. However, IMP is now looking very overbought and looking due for a pull back. The share price is testing the resistance level shown with the last 2 candles resembling a classic reversal. When looking at the indicators they are supporting this with the stochastics heavily grouped in the sell zone as well as a very high RSI value with a bearish cross. The target level is shown in the graph.

JSE TOP40 Trajectory algorithm 30 day forecast

JSE TOP40 Trajectory algorithm 30 day forecast

Will start posting more of these more frequently. If you would like a brief description of how this is derived please see the forecasting tab. In short this is an objective mathematical analysis of the trend and seasonality in price of and index or share. The program uses this to analyse what these numbers and indicating to and using that to build a share price forecast. Will also upload a Top40 technical analysis.

Trajectory Forecasting algorithm

Background

This model was developed as a by product of a project that I was working on for a health care company specializing in hospital care. At the company I was investigating the optimal way to allocate nurses in hospitals to minimize cost to the company, as well as provide adequate care to the patients. During this process the idea for the trajectory algorithm was developed. 

Basics of how its works

The model makes use of mathematical formulas to identify trend and seasonally in number patterns. The algorithm is allowed to use 56 variables all affecting the output in different ways. The algorithm runs selecting the number of variables and the sizes of each dynamically over iterations to arrive at a final answer. 

What you need to know 

What must be stated is that this model is no guarantee nor is it claiming to predict the future. Its purpose it to provide an objective trajectory forecast based on past numerical data. 

The orange line is the actual index value movement for the last 250 trading days.

The blue line is the forecasted index value for the last 250 trading days. The point at which the orange line stops is where the forecast model starts its prediction for the next 30 trading days.

The green line is half a standard deviation of the index subtracted from the forecast data with a 6 day moving average. likewise the red line is the standard deviation of the index added to the forecast data with a 6 day moving average. 

Combined the top and bottom standard deviations are referred to as the "cloud" and once the 30 day forecast starts the standard deviations are referred to as the "forecasting cloud". This cloud is a confidence band that gives the user an absolute range in which price movement should occur. In periods of lower volatility the cloud will be narrower and in periods of high volatility the cloud will widen.

FTSE100 & JSE ALLSHARE index correlation 

This post looks at what the correlation is between moves on the FTSE100 and the JSE ALLSHARE to see if there is any links in how these indecies move.

 The first set of data that was looked at is seen above. 613 days of correlated trading on the FTSE100 and JSE ALLSHRE was used. The data was compared and two cases were assessed. These cases were: what is the correlation between the FTSE100 closing up and the JSE ALLSHARE also closing up, and what is the correlation between the FTSE100 closing down and the JSE ALLSHARE also closing down. 

The data was compiled and the results showed that on a day that the FTSE100 closed up, there was a 71.84% correlation that the JSE ALLSHARE also closed up. The same was done for the case of the FTSE100 closing down on a particular day and the JSE ALLSHARE also closing down which showed a 69.15% correlation.

The mean, standard deviation and correlation coefficient was also calculated for the days of correlated trading for the indices and the results can be seen above. The mean for the percentage movements for both indecies was very similar with the FTSE100 mean percentage movement coming to -0.01% and the JSE ALLSHARE coming to 0.03%. The Standard deviations were also similar with the FTSE100 equaling 0.98% and the JSE ALLSHARE equaling 0.99%.

The last set of analysis is the set up of a probability curve for analysing movements on the FTSE100 and the historical correlation of what would happen on the JSE ALLSHARE. The Y-axis is the confidence band this is the value that is added and subtracted to the percentage move on the FTSE100. The X-axis is the probability axis. 

How to use this curve is simple. The move on the FTSE100 is taken e.g. FTSE100 is up 0.5%. Then the user chooses the confidence band on the Y-axis (percentage deviation) for this example 0.8% is chosen. Then move across the Y-axis until you intersect with the curve and then move vertically down until you intersect with the X-axis and this is you probability. For this example the 0.8% confidence band chosen is subtracted from the 0.5%  move on the FTSE100 (= -0.3%) and the probability is attained using the curve. Moving across from 0.8 on the Y-axis the result is that there is a 71.6% probability that the JSE ALLSHARE closes above -0.3% based on the historical correlation between the FTSE100 and JSE ALLSHARE.

Moving Averages and the Stochastic Indicator

A moving average is a trend that is applied to the stock data which represents an average of the share price points for specified periods. The primary functions of a moving average is to analyze the trend and momentum of the share price and to indicate to the user certain buying and selling opportunities. Because the moving average takes a certain number of periods and applies and average to them it is what is known as a lagging indicator as it confirms trends and is not used to predict them. The basic application is similar in a sense to the stochastic indicator which is previously discussed as seen in the menu. 

By looking at the example below lets establish the basics regarding the moving average. Below one can see a blue line that follows the share price, this is the moving average. Similar to the stochastic logic with a moving average on an upward trend when the candle sticks or line chart is above the moving average then the upward momentum of the share price is increasing. likewise if the share price is trading below the moving average then the upward momentum is decreasing. The same logic also applies to downward trends. 

When the candle stick or line chart is trading below the moving average then the momentum downwards is increasing relative to the moving average. If the share price is trading above the moving average then the momentum downwards is decreasing relative to the moving average.

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There are three types of settings that will be covered. The 21 and 50 period settings and the very important 200 period moving average. The first setting combination to be discussed is the 21 and 50 period moving average combination. This moving average combination is used to identify potential entry and exit points. Simply, this method covers less periods than the 50 period moving average and is thus more sensitive. This means that it will be a faster acting indicator. The 50 period moving average will be a slower acting indicator and is less sensitive to price fluctuation. Now combining these two indicators can be a powerful method for determining trades. The example below is a pictorial representation of this method.

When the blue line (21 period moving average) is above the red line this indicates that the momentum is moving upwards thus an increasing share price. Likewise when the blue line is below the red line this indicates that the momentum is moving downwards thus indicating a decreasing share price. The way these are used is to look at the points at which these two indicators cross over one another. This can be seen in the example at the red and blue buy and sell signal lines. When the blue line moves from below the red line and crosses the red line this is an indication of a potential buy. When the blue line moves from above the red line and crosses the red line this indicates a potential sell. As one can see in the graph the timing of the signals was not always optimal but if one had traded according to this indicator method one would have been highly profitable. If one had gone long on all the buy signals and shorted on all the sell signals the profit would have been 49% in 572 trading days where as holding the share for the entire period would have produced a -4% return. This shows that this method can be highly effective even if it is just used on its own, but combining this method with the other technicals shown on this site can create a highly effective trading strategy.

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The relative strength index is a technical indicator that measures a shares momentum. It measures a shares current strength to its historical price movements and uses the share prices closing data. Similarly to the stochastic this indicator gives a measure of the overbought and oversold conditions of a share. It too is also bounded between 0 and 100. A share is usually considered oversold on the RSI when its value is below the 30 mark on the vertical axis. A share is considered overbought on the RSI when its value is above the 70 mark on the vertical axis. The RSI can display a lot about a shares price further than the overbought and oversold conditions which will be discussed later on.

One of the applications of this indicator is when the RSI moves below the 30 mark or reaches a RSI low on the vertical axis this triggers a buying signal to the trader. Likewise if the RSI is above the 70 mark or has reached an RSI high on the vertical axis this triggers a selling opportunity to the trader. The 30, 70 lines are the general settings however these values are not set in stone and can be changed to accommodate a certain share  An example of the 30, 70 line application can be seen below.

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As with the previously discussed stochastic indicator a moving average can also be applied to the relative strength index indicator. The application is the same as with the stochastic indicator. For the example shown below a 14 period relative strength with a 7 period moving average was chosen which gives accurate trade entries and exits. Furthermore for this share the overbought bound was changed from 70 to 64 and the lower bound to 34 from 30. This was done as the share rarely reached the standard bound settings and historically the new bounds were shown to give a better indication. To recap the method, when the RSI moves from below the moving average and intersects the moving average underneath the 34 mark on the vertical axis this indicates points of trade entry. When the RSI moves from above the moving average and intersects the moving average above the 64 mark on the vertical axis this indicates a sell point. The application of this is shown below.

CANDLE STICK FORMATIONS

Candle sticks are a powerful tool used in charting and technical analysis. They deconstruct the share price data by displaying four different sets of data in one “candle”. The candle can be seen below. The four sets of data displayed are: high, low, open, and close. Candle sticks can cover different time periods - daily, weekly, monthly, etc - as long as the consistency of representation is the same. The placement of each can be seen in the pictures below. The green candle is termed a bullish candle and the red candle is termed a bearish candle.

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Bullish Candle

A bullish candle occurs when the closing price of a share closes higher than the opening price. This means that the share price increased on a particular day or period. This can be seen in the picture where the close is above the opening price.

Bearish Candle

 A bearish candle occurs when the closing price of a share closes below the opening price. This means that the share price decreased on a particular day or period. This can be seen in the picture where the close is below the opening price.

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Bullish Engulfing Pattern

The method to identify a Bullish Engulfing pattern is to ensure that the following entities are present: The first red bearish candle must be fully enclosed in the body of the green candle. There must be a confirmation candle to follow the middle bullish candle with a close above the close of the middle candle.

Bearish engulfing pattern.

The method to identify a Bearish Engulfing pattern is to ensure that the following entities are present: The first green bullish candle must be fully enclosed in the body of the red middle candle. There must be a confirmation candle to follow the middle bullish candle with a close above the close of the middle candle.

Bullish Harami Pattern 

The method to identify a bullish harami pattern is to ensure that the following entities are present: Two downward movement candles with the third being a bullish candle with a body located within the second candle's body. There must be a confirmation candle to follow the second bullish candle with a close above the close of the third candle.

Bearish Harami pattern 

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The method to identify a Bearish Harami pattern is to ensure that the following entities are present: Two upward movement candles with the third being a bearish candle with a body located within the second candle's body. There must be a confirmation candle to follow the second bearish candle with a close below the close of the third candle

Shooting Star pattern

A Shooting Star pattern is a bearish pattern that indicates downward movement. The method to identify a shooting star pattern is to ensure that the following entities are present: The share price must be moving on an upward trend. The wick of the candle must be at least 2 times the body of the candle. A confirmation candle is needed with a close below the close of the close of the middle candle"

Bearish Hammer pattern

A Bearish Hammer pattern is similar to a the shooting star pattern and indicates downward movement but is less bearish than a shooting star formation. The method to identify a bearish hammer pattern is to ensure that the following entities are present: The share price must be moving on an upward trend. The tail of the candle must be at least two times the body of the candle. A confirmation candle is needed with a close below the close of the close of the middle candle.

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Bullish Hammer pattern

A Bullish Hammer pattern indicates upward movement. The method to identify a bullish hammer pattern is to ensure that the following entities are present: The share price must be moving on a downward trend. The tail of the middle candle must be at least two times the body of the candle. A confirmation candle is needed with a close above the close of the middle candle.

Inverted Hammer Pattern 

An Inverted Hammer pattern indicates upward movement but is slightly less bullish than a bullish hammer pattern. The method to identify an inverted hammer pattern is to ensure that the following entities are present: The share price must be moving on a downward trend. The wick of the middle candle must be at least two times the body of the candle. A confirmation candle is needed with a close above the close of the middle candle.

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Rising Sun 

The way to identify a Rising Sun is by looking at the following things and ensuring that they are present. The left most candle must have an opening price above that of the middle candles closing price. The left most candle must have a closing price within the middle candle and with the closing price no lower than half of the middle candles body. Lastly there must be a confirmation, this is where the candle on the right has a closing value above the body of the middle candle.

Morning Star pattern

The way to identify a Morning Star pattern is by looking at the following things and ensuring that they are present. 1st, a long red candle stick. 2nd, a small green candle stick, comprising of a small body or open equal to the close, which is below the close of the 1st candle. 3rd, a long green candle stick with an open above that of the middle candle stick which closes at or above the center of the first candle stick.

Evening Star pattern

The way to identify an Evening Star pattern is by looking at the following things and ensuring that they are present. 1st, a long green candle stick. 2nd, a small green candle stick, comprising of a small body or open equal to the close, which is above the close of the 1st candle. 3rd, a long red candle stick with an open below that of the middle candle stick which closes at or below the center of the first candle stick

Stochastic Indicator tutorial

This technical indicator measures a shares momentum. What momentum means is, what is the share price doing, in relation to past data. This is one of the most popular indicators that traders make use of, and can be highly effective if used in the right way. The indicators output can be seen below.

The stochastic oscillator its self is bound between 0 and 100 and moves within this range. In the picture above one can see two horizontal lines one red and one blue. These indicate the overbought and oversold regions. They are placed at the 20 and 80 mark on the vertical axis. When the stochastic oscillator moves below the blue line at 20 on the vertical axis a potential buying region is indicated to the investor as the share is becoming oversold. Likewise when the stochastic oscillator moves above the red line at 80 on the vertical axis, this indicates to a potential investor that the share is becoming overbought and this is not a good opportunity to enter into the trade.

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The first technique that will be discussed is the application of the moving average to the stochastic to find potential trade entries and exits. In essence the moving average provides a smoothed version of the stochastic data as it takes the average of several values and uses that to create points which form the moving average version of the stochastic. The chart below makes use of a slow stochastic with a 7 day moving average applied. The different types of stochastics will be discussed in the latter of this page

The moving average is used to show the investor if the stochastic is increasing or decreasing relative to the past data. In an upward trend of the stochastic when the share price is above the moving average this indicates that there is an increase in momentum relative to past data, likewise when the stochastic data is below the moving average for an upward trend this indicates that the momentum is decreasing relative to past data. In the case of a downward stochastic movement. If the stochastic is below the moving average this means that the downward movement is strengthening relative to past data. However, if the stochastic is above the moving average this indicates that the momentum is decreasing relative to the moving average.

Thus far we have established what the buy and sell zones are and where they are placed, as well as establishing the application of the moving average to the stochastic. Using these tools the output is as seen in the graph below. 

As previously established when the stochastics are below the moving average in a downward trend this indicates that there is a strong movement down but when the reverse is in play where the stochastic is above the moving average this indicates that the momentum is increasing relative to the moving average. Using this logic, the buying points seen in the graph are selected where the stochastic intersects the moving average this is the point at which the decreasing momentum is changing to increasing momentum. Looking at “BUY ZONE 1” and “BUY ZONE 3”, this method worked very well in finding a good entry point into the trade however the method does not always deliver optimal entry points which can be seen in “BUY ZONE 2” where the buy signals were triggered, but the share price continued a sideways movement.

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Now to use the same logic but to identify potential sell regions. Using the moving average method the selling price was chosen when the stochastic moves from a position above the moving average intersects the moving average and moves below the moving average. This is because when the stochastic is above the moving average the share momentum is still increasing upwards relative to past data but when the stochastic intersects and cuts through the moving average the momentum is decreasing relative to the past share data. Looking at “SELL ZONE 2” and “SELL ZONE 3”, this method worked very well in finding a good exit point out of the trade. Like the buy trigger the sell trigger to is not always triggered at the optimal sell point as seen in “SELL ZONE 1” with the red vertical line in the first sell trigger. Here a sell was triggered but the share continued to move upwards with the optimal sales point being triggered at the second sell trigger.

Changing the Stochastic settings can have a significant effect on the results that the stochastic displays. Knowing what settings to use can make a significant difference to the buy and sell signals that are displayed to the user. The three settings that will be discussed will be fast, moderate and slow moving Stochastics.

The slow stochastic is used to give a less sensitive reading of the momentum. Slow stochastics will usually provide less buy and less sell points as opposed to the fast and moderate stochastics, but the points at which the potential buys and sells are triggered will tend to be better entry and exit points. The potential problems with the slow stochastic is that it can sometimes show a buy or sell signal that its slightly too late or later then the optimal point. The settings that have been proven to work well are to set the stochastic to a 21 period with a 7 day moving average.

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The medium setting is used to get a balance between the fast and the slow stochastic, traders will use this if they want a little more sensitivity in their stochastics as this will give more potential buy and sell signals. The settings that have been proven to work for a medium outlook are to set the period to 14 days with a 3 day moving average. An example of the 14 period stochastic with a 3 day moving average can be seen below

The last setting that will be discussed is the fast setting, this is used when a high sensitivity is desired. The setting will give the most potential buy and sell signals. The points at which these signals will be triggered is geared to faster trading, especially day trading where a high volume of signals is needed.