Sasol Limited (JSE: SOL) underwent a significant downturn on Wednesday, securing the position of the JSE Top 40’s largest decliner, falling over 7%. The catalyst behind this plunge was JPMorgan’s substantial cut in the target price for the company, marking a noteworthy 26% decrease from R248 to R184. This adjustment unfolds against the backdrop of lingering uncertainty surrounding Sasol’s long-term cash flows and a nuanced outlook for the oil and chemical market in the early months of the year.
This reduction compounds the challenges, contributing to a 29% contraction in the company’s share price over the past three months and deepening its recent struggles. The intrigue intensifies with the ongoing uncertainty in the oil market, where a recent decline in crude oil prices is attributed to demand concerns. Saudi Arabia’s announcement of sharp price cuts on its oil delivery further complicated the landscape, counteracting supply concerns amid escalating geopolitical tensions in the Middle East.
Now, the question arises: does the recent market contraction present a lucrative opportunity for traders to seize, or does it serve as a testament to the enduring challenges confronting this chemical giant in the long run?
Technical
On the daily chart, there were signs of optimism as the share price recently broke through a long-term downtrend. However, the 25-SMA (green line) offered stern resistance, halting the bullish run. The crossing of the 25-SMA and 50-SMA (blue line) below the 100-SMA (orange line) confirms the recent bearish presence in the share price’s trajectory. However, the RSI trades close to the oversold level, and with a potential double-bottom formation, there could be some upside potential in the days to come.
Resistance at R176.03 could be the first hurdle to the bullish recovery, whereafter, the 25-SMA at R181.19 could once again enter the equation. If the price manages to exceed this resistance, there could be potential for a newly formed uptrend. In that case, the levels to look out for could be R189.85 and R203.23, the 50-SMA.
However, the initial downtrend could be sustained if the price fails to exceed the R176.03 resistance in the upcoming sessions. Support at R161.46 could then come into focus before neckline support at R154.24 could act as a last line of defence against an additional prolonged downturn.
Summary
Sasol Limited recently contracted over 7%, adding to the uncertainties surrounding the oil and chemical market in the opening month of the year. However, a potential double bottom pattern has emerged, which could entice the buyers to push the price higher if resistance at R176.03 gets cleared.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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