JSE Top 40 Index: Monthly = Secular Powerhouse with Historic Momentum Extremes
- Lester Davids
- 12 hours ago
- 7 min read
Research Notes November 2025 > https://www.unum.capital/post/rnov2025
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MONTHLY TIME FRAME: The index is in a historic uptrend but is flashing warning signs of acute overheating.
Historic Momentum Extremes: The market has reached a statistical ceiling. The Ultra Short Term and Short Term momentum indicators are effectively "pinned" at their absolute maximums. This represents a rare state of total euphoria where buying pressure has hit a mathematical limit.
Universal Overbought Conditions: In a definitive display of a "blow-off" top phase, every single trend timeframe—from the fast-twitch Ultra Short Term to the structural Base Term—is currently trading deep in the "Overbought" tier. This suggests the rally has become stretched across all investment horizons.
The Rejection Wick: While the monthly candle is still green, the price action reveals a significant rejection. After hitting a new all-time high of ~108,350, the index has retreated nearly 5,500 points to trade around 102,800. This long upper wick signals that sellers are aggressively stepping in to cap prices at these elevated levels.
Secular Powerhouse: Despite the short-term overheating, the Base Term trend is reading at levels that confirm a powerful secular bull market. History suggests that while a cooling period is imminent, the underlying trend is strong enough to eventually absorb the selling, provided it doesn't turn into a panic.
Mean Reversion Risk: The gap between the current price and the mean (equilibrium) is extreme. When indicators are pinned near their ceilings, the subsequent normalization can be volatile. The market does not necessarily need to crash, but it desperately needs to consolidate sideways or correct lower to reset these "red-lining" gauges.
Core Thesis The JSE Top 40 is priced for perfection and currently running on fumes. The readings on the fastest indicators are unsustainable anomalies that typically precede a sharp mean-reversion event. While the long-term trend is unequivocally bullish, the immediate risk/reward profile is poor for new long-term entries. The thesis suggests a period of volatility and cooling is required to digest the move to 108,000.
Comprehensive Summary The momentum profile is screaming "maxed out." It is exceptionally rare to see the Base Term trend joining the faster timeframes in the deep "Overbought" zone. This alignment signifies a market where "everyone is in." The emerging upper wick on the monthly candle validates the momentum data, confirming that the smart money is using this liquidity event to take profits.
Multi-Timeframe Trend Analysis The Ultra Short Term trend is OVERBOUGHT (Pinned) and sloping Flat/Down, reflecting the immediate stalling of the vertical rally. The Short Term trend is OVERBOUGHT (Pinned) and sloping Flat, showing that the 3-month momentum has hit a wall. The Mid Term trend is OVERBOUGHT and sloping Upwards, continuing to drive the intermediate advance despite the heat. The Base Term trend is OVERBOUGHT and sloping Upwards, confirming the overarching strength of the macro bull run.
Breakouts, Breakdowns, and Reversals (Long-Term Focus) The market is attempting to define a macro top. Bullish Continuation: A monthly close back near the highs of 108,000 would be required to negate the bearish implications of the current "shooting star" wick and suggest the euphoria has not yet peaked. Correction Confirmation: A failure to hold the 100,000 psychological level in the coming month would confirm the reversal signaled by the momentum extremes, likely targeting a test of the 90,000 breakout zone.
Key Actionable Zones Immediate Resistance is the new all-time high at 108,350. Psychological Support is at 100,000. Major Structural Support (the breakout point) is located in the 88,000 - 92,000 zone. Given the extension, a pullback to 95,000 would be considered a standard technical correction within this massive uptrend.
Trading Notes/Resources (Where Applicable)
READY TO TRADE: ACTIONABLE AREAS: For active traders who look to generate cash flow on a continuous basis, determining the ‘next best probability’ level to execute against may be of immense value. The blue and red horizontal lines on the chart represent a next best probability buy re-entry range and a next best probability sell re-entry range over the short term. The ranges assume no existing position being held by a trader while the probabilities are based on several factors which may include: short term rating, medium term regime, momentum, horizontal or diagonal support/resistance, candle structure, moving averages and standard deviation, among others. These are short term levels and may be in contrast to medium and long term outlooks which are based on the weekly and monthly charts and, which may be applicable to long term investors. These levels are subject to change based on sentiment, the subsequent price action and company/sector specific or macro news flow. As always, while the levels are outlined, traders should be prepared to adjust in real-time based on the aforementioned.
"Strategy Alerts" help clients identify trading opportunities. When a ticker's real-time or pre-market price action aligns with the criteria on a slide—such as a pullback to the 21-day EMA or a breakout from a consolidation base—it effectively "matches" that stock to the strategy, triggering an alert to a potential trading opportunity. This approach transforms the playbook into a dynamic scanning tool, allowing you to instantly categorize active stocks by the specific technical thesis playing out, ensuring that every trading potential opportunity communicated is backed by a predefined, actionable setup.
THE TACTICAL TRADING GUIDE (PRICE ACTION MODEL): UNCOVER OPPORTUNITIES & ASSESS REWARD-TO-RISK
It helps helps clients determine and shed light on the some of the following:
The CURRENT TECHNICAL POSITION and a PRICE ACTION PROBABILITY for multiple time frames.
Three (3) ‘trading’ time frames are considered: Short Term (1 to 10 days) / Medium Term (2 to 4 weeks) and Long Term (5 to 8 weeks)
Whether the reward-to-risk is attractive for a buy/long position
Whether a share is weak. In this case, wait until the price stabilizes before looking to enter (i.e. want until it stops going down)
Whether aggressive buying is underway. In this case, do not ‘chase’ (do not buy) but instead wait for a pullback to re-enter a buy or an overextension with deteriorating candle structure to sell/short.
Whether a trader can look to buy a pullback into a key moving average (continuation trade)
Whether a share needs to break a range for a new trend to be determined (bullish or bearish)
Whether a traders needs to monitor for a change of character that could lead to a bullish or bearish reversal
Whether a share could start a consolidation phase or before continuing it’s bullish or bearish trend
Whether the upward momentum is slowing (if it's in a bullish phase)
Whether buyers can look to 'phase in' to a position (if it's in a bearish phase)
Whether a share lacks directional bias.
The data set is available in real-time (on request)
The readings are subject to change as the price action develops.
TRADING TIP # 1 Let The Candle Confirm
Out of all those available, Candlestick Charts are the most widely used when it comes to analyzing price from a technical perspective. The interpretation thereof helps traders to understand the interaction between market participants and informs who is in control between buyers and sellers. Various types of candle formation convey key information about the range of outcomes for a share for example, following a downward trend, a long lower tail, doji, piercing or bullish engulfing suggests that buyers have started to become active/started to take an interest while following an upward trend, a long upper tail, doji, dark cloud cover or bearish engulfing suggests that sellers have started to become active/started to take an interest. While information is conveyed pre-market, it is the intraday price action that will confirm any trade or opportunity. While we have a plan, we are also ready to switch gears as the price action develops.
TRADING TIP # 2: Failure & Reclaim
FAILURE to hold a prior session high/range high may signal that the upside momentum is slowing and that an opportunity to short/sell may be at hand. This is often reflected via a deteriorating candle structure which suggests that sellers are starting to take control. Examples of such candles are long upper tails, doji's, dark cloud covers, bearish engulfing candles etc. RECLAIMING a prior session low/range may signal that the downside momentum is slowing and that an opportunity to buy may be at hand. This is often reflected via a improving candle structure which suggests that buyers have started to enter and are looking to take control of the price action. Examples of such candles are long lower tails, doji's, piercing candles, bullish engulfing candles etc.
TRADING TIP # 3: Take Note of the 'Igniting Bar'
This is a large green or red candle which suggests that traders should: TAKE NOTE note of the change in characters and potential change of the trend. TAKE NOTE of a potential acceleration of the trend. TAKE NOTE of potentially aggressive buy or selling Often, BIG MOVES start with BIG MOVES.
Core Trading Principles: Short and Medium Term
Trade with the primary trend.
Volume Matters. This represents the interest of large institutional investors who have the ability to move a share, both up and down.
Do not short/sell a share that is above, and in close proximity to it’s rising 8 and 21-day moving averages. This trend can persist for an extended period.
Ultra short term traders, if a share has advanced strongly over a 3-7 day period, book profits. You can always re-enter and do the same trade at lower levels.
If a share is printing a large bullish (green) candlestick following an extended move, use the strength to sell. The likelihood that the share retraces is high.
If a share is printing a large bearish (red) candlestick following an extended move to the downside, use the weakness to start a long position. The likelihood that the share rebounds is high.
Trade in the direction of the 20-day moving average, using the MA as a level to enter as well as a hard break thereof as a trailing stop-loss.
The 8 and 21-day moving averages often act as support and resistance levels. When they are turning down, use them as levels to sell into. The opposite applies when they are turning up.
The first back-test and undercut of the 50/75-day exponential moving average range has a high probability of holding as support or resistance. Buy or sell it for a 1-3 day move to generate cash flow.
Stocks above a rising 200-day moving average spend the majority of their time trending higher. The opposite applies when the 200-day is trending down.
Previous support can turn into resistance and previous resistance can turn to support. Use these zones as levels to trade against.
Support and resistance levels and key moving averages are ranges rather than exact levels. They often overshoot these zones before occasionally reversing at these levels.
Respect the FIB (Fibonacco) retracement zones. They often act as support and resistance levels.
‘PAY-tience Pays’, however be nimble to react to opportunity to cut when a trade hasn’t been working.
Above all, know your time horizon.
Lester Davids
Senior Investment Analyst: Unum Capital
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