Relative, or ratio charts as it is sometimes known, helps market participants to compare the performance of two instruments with the primary aim of ascertaining whether one is outperforming the other. For example, a ratio chart can help understand whether Banks or Insurers are underperforming or outperforming the Top 40 index. This can help a trader/investor recognize the potential risk or opportunity and help position to be underweight, overweight or equal weight.
Considering the ratio chart of SANLAM vs the JSE TOP 40 INDEX, the following is observed: (1) the current trend is steep, with the price having traded in overbought territory (2) the ratio has developed a bearish divergence where the price has made a higher high while the RSI has made a lower high.
Takeaway: Going forward, on a short term basis, Sanlam is likely to underperform the JSE TOP 40 INDEX / broader market.
CHART: Sanlam Relative To JSE Top 40 Index
Lester Davids
Analyst: Unum Capital
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