The JSE Top 40 Index (JSE: J200) recently witnessed a notable shift in its trajectory last week. After enduring two consecutive weeks of losses, the index rebounded, closing positively with a gain of 45 basis points. However, the optimism was short-lived as this week saw a reversal, with the index shedding over 1% week-to-date, indicative of persistent selling pressures.
The downturn in the index is closely linked to subdued mining activity, with both mining and gold production experiencing declines of 4.2% and 3.4% for December, respectively. Consequently, mining stocks within the top 40 are grappling with notable losses year-to-date.
Market participants eagerly await Wednesday’s dual announcements: the South African inflation rate report and the budget presentation. Market projections suggest a potential uptick in year-on-year inflation by 30 basis points to 5.4%, which could have implications for equity markets amidst expectations of prolonged higher interest rates. Furthermore, global market sentiment hinges on the Federal Reserve’s stance, with the release of its FOMC Minutes also slated for Wednesday, amplifying uncertainty and influencing investor decisions.
Technical
The recent price action of the JSE Top 40 Index unveils a narrative of resilience amidst challenging market conditions.
Despite enduring a downtrend characterised by a descending channel pattern and trading below the 100-day moving average, the index showcased its ability to bounce back. A significant support level materialised at 65267.58, triggered by oversold Relative Strength Index (RSI) conditions, catalysing an upward surge.
This surge propelled the index to break out from the descending channel, surpassing the 100-day moving average, indicating a shift towards bullish momentum. However, the rally encountered resistance at the 68941.00 level as supply outweighed demand, leading to a retracement. Currently, the index has retraced towards the 61.80% Fibonacci Retracement Golden Ratio, breaching it downwards and suggesting intensified selling pressures. If bearish momentum persists, a retest of the 65267.58 support level seems likely. Conversely, a resurgence of bullish sentiment could see attention drawn towards the 68941.00 resistance level.
Summary
The JSE Top 40 Index faces a complex landscape, influenced by subdued mining activity, inflationary pressures, and global market sentiment favouring the Greenback. Despite showing resilience amidst a breakout of a descending channel pattern and breaching key technical levels, intensified selling pressures could drive further downside momentum towards the 65267.58 support level.
Sources: Statistics South Africa, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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