South Africa 40 index

SA40 discussion and analysis

This forum is for general discussion and sharing of views related to the South Africa Top 40 index. This index is offered by various brokers (in my case IG Markets) and is available internationally.


Objectives:

 

1. Technical chart analysis
2. Elliott Wave counting
3. Discussion

I will keep a running EW analysis of the price action since this is a widely used scientific and principled method for analysis although all trading styles and preferences are welcome. For now I don't expect many forum participants, so I will use this thread as a repository of studies and charts.


Resources:

Initial Elliott Wave count of the SA40 (30/01/13)

Long term chart of SA40


Blank template chart of SA40 (30/10/13)

Elliott Wave International

Limitation of Liability
The analysis and wave counts in this thread are my own interpretation and are speculative. As per common sense, please do not construe any advice given (or implied) as a trading recommendation. I will not be responsible for any losses you incur as a result.

Price action on the 1hr chart below shows the new all-time highs hit over the past few days. The index has been in a strong uptrend for more than 10 months and at this time topping action is imminent. The wave count is tentative although possibly correct to date. With the EUR/USD and major indices (DJI, S&P, FTSE, Shangai, etc) all engaged in topping action it is a matter of days (if not hours - FOMC rate decision tonight) before tops are struck across most markets. It is possible a top is already in for the SA40.



A closer look on the 5min chart shows the rounded top formed last night. Today's downward price movement seems corrective and there is sure to be more volatility in price movement as both local and foreign players open new positions and close others based on recent earnings reports. Bullish sentiment has reached extreme levels and the frenzy with which participants are piling into the markets is reaching fever pitch.



Expecting resumption of the uptrend during the US session with a new (and possibly final) high.

No return to yesterday's levels. In fact, US GDP at -0.1 (q/q) was released, sending metals and EUR pairs up, and most indices down, including this one. Later the FOMC rate statement gave the bulls nothing and the DJI began a choppy decent ending below the 13875 pivot by close. The equivalent level for the SA40 is around 36100 in the vicinity of the upper dashed trendline. The SA40 correlates to the DJI most of the time and today's price action copied the DJI in terms of direction but not magnitude. It's as if the SA40 had already put in its big down move (250 points) during the SA session and the Dow's big move down (during the US session) correlated to only an additional 100 points down for the SA40.

I've noticed that the SA40 tends to amplify Dow up moves and mute Dow down moves. Why? Not sure. I used to think this was a consequence of over-exuberance amongst SA investors and fund managers. But since understanding latter-day money flow a bit better, I think the strong bull market in SA equities is a result of foreign inflows into Emerging Markets AS WELL AS over-exuberance amongst SA investors as they catch bull fever from EurAmerican economic news, despite SARB having no QE or pro-stocks policies to massage the market.

Yesterday's price action down was very choppy and whenever I see choppy zigzaggy action like that I think "correction". The extent of the move is quite big for a single corrective wave - could this be a leading diagonal, perhaps only part of wave 1 down? We may have to wait for NFP data on Friday for the trend to become clear.

A look at the 1hr chart shows what may be an ending diagonal which will be wave 5 of 5 of (C) of ((B)) and possibly end the advance. The red count (shown as alternative count along the bottom of the chart) has 5 of 5 of (C) already in and a terminal decline, wave 1 of ((C)), underway. This C-wave decline will see the index come back down to at least 24000 over the next 3-5 years or sooner.

Notice the open price gap in the bottom left of the chart. Its been open for a while and with a terminal decline imminent (or already underway) I don't expect praise for predicting that this gap WILL be closed, for sure and 100% no-doubt.



It is worth noting that with the current social mood of extreme optimism and complacency (in the face of economic disaster) this index may well hit new high after new high until everybody participating in it are sitting on the moon together. Shaun Murison, analyst at IG Markets South Africa, has calculated (from the triangle correction a-b-c-d-e) a near-term target of 36750 before a correction. The wave count, as well as existing trendlines on the chart, concur with his view. The subsequent correction may fill the open gap, drop to 34250 (more on that target later) and then make a bull-run to new highs. However, this is assuming that all things remain equal - and "things" have a knack of not remaining same-same as before. Given the seasonals (index correction during February) and increasing labour (union) action in South Africa, plus the limping world economy, a deeper correction seems on the cards...

how deep? deep as required to eliminate the current herd of bulls before summoning the next generation great bull market!

hopefully, business and political leaders will have learnt all important lessons from mistakes made in the past. (only joking )

Triple Three correction W-X-Y-X-Z

Price action formed a 2nd wave during overnight trade and then declined in 5 waves this morning. Since noon a correction has formed and it has traced out a textbook triple three. The subwaves (shown on the 1min chart below) in this compound correction are clear and easily counted, but sometimes these corrections can be more trouble than its worth to label. In such cases I simply look for the larger degree waves and label them A-B-C-D-E.

As for the labeling of the 5-wave impulse down, MACD is my best friend. I use the MACD indicator to identify 3rd waves: see the MACD go extreme on subwave 3 of 3?. This is the case even with 3rd subwaves of larger degree waves 1 and 5. Also notice how MACD crosses well over its neutral line when waves 2 and 4 complete. It's easy to identify 3rd waves by their extreme MACD value and 2s and 4s by their crossing over the neutral line. This occurs at all time frames. You will notice that wave 5 typically has a lower MACD reading than wave 3 eventhough wave 5 usually represents a price extreme for the entire advance. This divergence is a signal for the savvy trader to do what he does best! Incidentally, this is also why I am impartial in the temple of Bears and Bulls - as long as there is a trend (whether up or down) the sharp-eyed trader with a MACD can strike from the eagle's shadow.

A 1st wave can be seen tracing out on the right and it will be interesting to learn its destination - hopefully some place far in the south!

Edit: not a 1st wave at all but another component of the larger corrective pattern unfolding! a welcome reminder to keep those alternate counts close at hand.

Great EW analysis venzen

I use to trade ALSI but it's been such a rollercoaster the last few months, I've sat out lately as it's on it's own mission.

Keep up the good work, will be following your thread

Thanks Terra, I try my best but these South African indexes are volatile and over-exuberant. I expect the ALSI and SA40 to both top in tandem with the DJI and SPX. These events are imminent. Dow @ ~14,050 and S&P at 1525 (see chart below - put my Fibonacci cap to good use)

Thanks for the compliment and encouragement!

Attachment

Hi Venzen,

Thanks for the Alsi thread. Very informative. I'm also trading the Alsi index, but through a different broker, with full market depth, and opening at 8:30 till 17:30, trading live into the market. Just wondering if you maybe are interested.

Hi J316,

Welcome and nice to have you onboard. Just be clear that the SA40 is not the same as the ALSI - they correlate fairly well on a day to day basis so analysis should apply both ways. IG Markets does not offer the ALSI. What you mention sounds interesting... Which broker are you with?

Hi guys,

I'm also from SA, looking to trade CFD's and futures.

Can you please tell me which brokers you are using?

Thanks

Hi Bittereinder, welcome.

I am using IG Markets at the moment. They're okay but I have some issues with slippage, stop-hunting and wide spreads with regards to the SA40 index specifically. Other than that their international products are good (CFDs and futures) as you mention. To open an account in SA is easy - you create a local (SA) account and then they open an International account for you (based in the UK) which you fund via bank wire transfer from SA. I would talk to them first - they're based in Fourways and very helpful (they want your money, right? )

There are other brokers based in SA such as GT247 and PSGonline but I have no experience trading with them.

Good luck and see you around.

The SA40 index seems to be correlated (in fact slightly ahead in terms of downtrend) to the global stock indices. Not labeled on the chart below I can count 4 clear waves from the mid-Feb top. Wave 5 is in progress and a downside target with Fib relationships is shown at the light blue rectangle near 34100.

http://ubuntuone.com/0PkNWi9BixWwLJGUmW4Qf8

Wave 5 of ((1)) fell short of my target by a couple of hundred points. No problem, because wave ((2)) retraced a perfect Fibonacci 61.8% of the entire decline. Should this count be correct then we can expect to see the impulse down unfold as shown on the chart below. I scrolled the PA to the top left of the chart to remind myself of the vast open space mawing below

If this count plays out as shown then we can extrapolate a downside target of 24,900. If the index is merely correcting then we will gain more insight once PA embarks on its upmove from 32,000. At the moment there is no evidence that this downmove is going to be short-lived, but keeping the alternate count of a "normal correction" on the table will keep my trading account liquid and deter any major short commitments until the Bear market is triple confirmed.

It is only when prices keep dropping impulsively past the mainstream, complacent market commentators' calls for a bottom that the real decline will begin in earnest. This scenario will probably be triggered by a liquidity sell-off by foreign investors scrambling for cash and not by local fundmanagers or investors. The local suits will most likely hold on too long (as they always do) since they are optimistic to the extreme and arrogantly complacent in their belief that South Africa's markets are "well-insulated" from a global crisis. Last year, I mentioned the growing danger of a major trend change to a division manager at Sanlam and he snorted the response: "And which tea leaves have you been reading?!". I didn't respond. But he will find out anyway: Elliott Waves - and that's with 2 t's


http://ubuntuone.com/7ZdvAzBt0SHaRVbJbALIx4

Thanks for the warm welcome. I've also traded the SA40 through IG Markets. But moved to SA stockbrokers where I trade the Alsi, because of better cost. Trading around R15/contract on Swordfish. I can help you out setting up an account with them, maybe first send you some info. Maybe send me a personal message then we can exchange contact details.

I am using GT247 but from a Forex perspective. They also do CFD's. I have not had any issues to date. They are based in Melrose Arch.

For other funds to trade also look at the SATRIX range as a basket of shares is easier to trade then individual stocks.