Trading JSE Top 40 Index: Short Term Bear Flag In Development; A Continuation of The Deteriorating Candle Structure

Research Notes For 30 June to 04 July > https://www.unum.capital/post/r3004july

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Previous Post (Friday, 20 June)

The JSE Top 40 Index is currently navigating a period of consolidation and potential short-term pullback following a significant rally from its low on 07 April. While the longer-term trend remains firmly upwards, recent price action and technical indicators suggest a temporary loss of momentum as the market unwinds from overbought conditions.

According to pre-market data, the index's short-term trend, as indicated by the 8-day Exponential Moving Average (EMA), has shifted to "DOWNWARDS". This aligns with the observed unwinding from daily and weekly overbought levels and the appearance of distribution candles on 11 June, signaling an increase in selling pressure. The 21-day EMA is currently indicating a "SIDEWAYS" trend, reinforcing the view of a market in consolidation.

This short-term weakness is further contextualized by a 7-day trend described as "Neutral" and a 14-day trend as "Rangebound". The immediate outlook, expected to unfold within the next 1 to 10 trading days, points towards a "Steady Upward Trend But Weaker On Lower Time Frame." Traders are advised to look for support at or just below the 50-EMA, followed by a reclaim of this level to trigger a potential rebound.

Looking at the medium-term, expected to play out over the next 2 to 4 weeks, the index is seen to be "Consolidating Within an Upward Trend." Should the 8-EMA be decisively breached, the 21-EMA is highlighted as a potential buying range.

Despite the current short-term headwinds, the underlying strength of the market is evident in the longer-term moving averages. The 75-day EMA, 200-day Simple Moving Average (SMA), 21-week EMA, and 50-week EMA are all pointing "UPWARDS". This suggests that the broader bullish trend remains intact.

The long-term outlook, anticipated over the next 5 to 8 weeks, indicates that "Buyers In Control But Weakness On Lower Time Frame." The strategy suggests looking for a pullback to the 8 or 21-EMA as a potential "Buy Range" before the index makes its next move higher.

In summary, the JSE Top 40 Index is experiencing a classic case of short-term consolidation after a strong upward move. While caution is warranted in the immediate future due to signs of weakness, the long-term bullish structure remains solid, presenting potential buying opportunities on dips for patient investors.

Lester Davids

Senior Investment Analyst: Unum Capital