The Johannesburg Stock Exchange (JSE) Top 40 Index, a benchmark reflecting the performance of South Africa’s top 40 blue-chip companies, witnessed a fluctuating narrative in recent weeks.
Following a triumphant streak, the index reeled back, shedding 3% after three consecutive weeks of gains. This shift hinted at prevailing bearish sentiments that persisted as the new week commenced.
Favourable market sentiment toward risk assets was buoyed by softening conditions in the U.S. economy, notably within the labour market. The weakening of U.S. treasury yields and the Greenback laid the groundwork for risk asset gains, notably benefiting the Top 40 index.
However, this optimism faced headwinds as South Africa’s third-quarter GDP contraction by 0.7% introduced a threat to equities amidst an economic slowdown. As global investors pivot attention to key factors like U.S. inflation and the Federal Reserve’s impending interest rate decision, the spotlight also falls on South Africa’s upcoming inflation report, which is anticipated to hold steady at 5.9%.
Technical
The JSE Top 40 index faces intensified bearish pressure, marking consecutive days of decline and potentially extending this trend. The breach below the 100-day moving average hints at a possible shift toward a downward market trajectory, signalling a pivotal moment for traders.
Recent price movements showcased a tug-of-war between support and resistance levels. Support consolidated around the 65053.90 mark after a surge in price action countered a slight dip, highlighting resilience amid downward momentum. However, the index faced resistance at 70305.01, leading to a retreat from overbought conditions on the Relative Strength Index (RSI).
Technical indicators, like the 61.80% Fibonacci Retracement Golden Ratio at 67059.82, now come into focus amid the retracement. Should selling pressure persist, breaching the Golden Ratio with substantial volume could indicate a growing interest in downside potential, potentially aiming the support level. A breakdown below the Golden Ratio may reinforce downward momentum, while a successful hold could keep the index buoyant, potentially leading to a retest of the resistance.
Summary
The JSE Top 40 Index grapples with bearish pressure amid consecutive declines, signalling a potential shift in market sentiment. Recent movements around support at 65053.90 and resistance at 70305.01 underscore the index’s volatility. As global factors, including U.S. inflation and South Africa’s economic health, loom, the index faces a critical juncture, oscillating between downside risks and potential rebounds.
Sources: Statistics South Africa, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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