JSE Top 40 Index: Bearish Reversal & Downside Follow-Through Coinciding With Overbought Conditions & Deteriorating Breadth Readings. Now Approaching The 8-Week EMA

Lester Davids
Aug 1
1 min read

Research Notes 04 - 08 August > https://www.unum.capital/post/r0408august

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Previous Post (Pre-Market, 25 July): JSE Top 40 Index: S/Term Unwinding From Overbought; Medium & Long Term Bullish Momentum In Place

At the beginning of last week, our analysis highlighted the index trading in short term overbought conditions. While this means it's in a high demand phase (high levels possible), it also increases the probability of a retracement. As noted at the time, the bull trend had become overextended, with some risk of retracement. On Monday it traded higher while the remainder of the week saw short term consolidation. Underneath the surface, breadth had deteriorated with a defensive shift followed by an acceleration of bearish breadth momentum by Thursday's close. On Friday, the index saw a sharp drop at the open, re-testing it's rising 8-day moving average before finding intraday support. Zooming out, the following it noted: (1) the rising 8-day EMA remains above it's rising 21-day EMA, which in turn remains above it's rising 75-day EMA. In the short term, a further pullback is likely to find support the 21-day EMA which is currently just above the previous breakout level. As noted in recent week's the upper boundary of the long term channel is (higher) in the neighborhood of 95,000 (cannot be ruled out).