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Writer's pictureLester Davids

JSE Top 40 Index: 200-Day Breached, But Caution On Pressing Shorts Too Hard (+ Price Action Model)

Trade the Top 40 Index with Unum Capital.

To get started, email lester@unum.co.za


Historical price action developments/trading setups have shown us that when a price has been in a downward trend, there is always a risk that the downward momentum slows, which can then be followed by the start of a 'base formation' or bullish reversal. Taking an ultra short term view, we are aware that the index has been in a downward trend, with 'high bullish momentum/approaching oversold' being the current reading. For traders looking to enter short/sell positions, the current level may not be optimal. Why? One scenario is that the price could continue to trade lower in the following session (today, 14 January) which can be followed by a reclaim of the prior day lows and a bullish reversal. I know the popular saying is 'trade what you see' however my goal as an analyst is to prepare you in order to recognize opportunities and risks, with various price action scenarios to consider. Bottom line: the index can trade lower in the short term, however, be careful to not press you shorts too aggressively around these level.


Analyst's Price Action Model as of Monday 13 January at 13h55

Q: What is the overall trend of the JSE TOP 40 Index? A: The overall trend is bearish. This is indicated by the "Aggressive Selling" in both the medium and long-term price action readings.


Q: What is the current 7-day trend? A: The 7-day trend is also bearish, with high bearish momentum and an approaching oversold condition.


Q: What is the current 14-day trend? A: The 14-day trend is very bearish.


Q: Is there any opportunity for a short-term buy/long position? A: Yes, the reward-to-risk ratio is becoming attractive for a small buy/long position, but this is only for the short-term (1 to 10 trading days).


Q: What is a potential scenario for the medium term (2 to 4 weeks)? A: Aggressive selling is underway therefore, traders should wait for lower time frames to stabilize before considering any action.


Q: What is a potential scenario for the long term (5 to 8 weeks)? A: Aggressive selling is underway however, traders should look for support at prior swing lows to capture minor rebounds.


In summary: The JSE TOP 40 Index is currently in a bearish trend. While there is a short-term opportunity for a small buy/long position, aggressive selling is advised for the medium and long term. Traders should wait for lower time frames to stabilize before considering any action.


JSE Top 40 Index Daily Chart as of 13h58 on Monday 12 January 2025
 

Previous Post (Sunday 12 January 2025): JSE Top 40 Index: Approaching It's 200-Day But Vulnerable To A Breach


Update:

Breached short term support

Rally rejected into the declining 8-day EMA

Trading below it's declining 21-day EMA

Trading below it's 75-day EMA, which has started to turn lower

Trading below it's 21-week EMA, which has started to turn lower

Monthly time frame = Neutral

Weekly time frame = Weak

Daily time frame = Weak

Above a gradually rising 50-week EMA

Above a gradually rising 200-SMA SMA


Analyst's Price Action Model

Regime: Monthly, Weekly & Daily


Top 40 Index Daily Chart as of the close on Friday 10 January 2025. Resistance and Support zones are subject to change as the price action and news flow develops.
 

Previous Post:


Update:

Trading in a tight consolidation range

Rejected into the declining 21-day EMA

Rejected into the declining 75-day EMA

Shifting to and consolidating below a flat 21-week EMA

Deteriorating candle structure at short term support

Above a rising 50-week EMA

Above a rising 200-SMA SMA



 

Previous Post: TRADING The JSE Top 40 Index


On 27 September 2024, research highlighted the index trading in a short term overbought range, from which we subsequently saw a retracement and unwind from these overbought conditions. Over the 3 months, the index has traded in a sideways range, reflecting a period of distribution among several large and mid cap constituents. The following key developments are also noted:


  • The price has shifted below it's 50-day EMA (the 50-day EMA has also lost it's upside momentum and is turning lower).

  • The price is breaking below it's 21-week EMA - a level which previous held as support on retracements.

  • The price continues to trade above it's 50-week EMA, which is sloping upwards. This is a positive development.

  • The price continues to trade above it's 200-day SMA, which is sloping upwards. This is a positive development.

  • The 50-week EMA and 200-day SMA are currently aligned. This range could act as a level of support on a further retracement. Do however note that the price has the ability to overshoot this range and test the swing low of 11 September at 72991.



Lester Davids

Analyst: Unum Capital

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