Discovery Limited (JSE: DSY) experienced a momentary setback, with its share price adjusting by over 14% following the unveiling of its latest annual earnings report toward the end of September. Notably, the report highlighted a slight dip in year-over-year profit attributable to shareholders, decreasing from R5.42 billion to R5.26 billion. The net insurance revenue also saw a minor decline, moving from R50.05 billion to R49.54 billion.
However, the downtrend encountered a turning point, and since establishing support, the share price has rebounded by almost 8%, hinting at a potential shift in investor sentiment regarding the group’s outlook. With a 5% rise last week, this resurgence could suggest that investors are eyeing a potential opportunity in the previously discounted share price, anticipating a positive turn in the company’s prospects as we advance.
Technical
On the 1D chart, a strong descending channel emerged. Still, since finding support at the demand zone around R127.85, a retracement was catalysed by a breakthrough above the dynamic resistance of the channel. While a reversal is still possible, the share price breached the 50-SMA (blue line) resistance on Tuesday, suggesting a bullish shift in the market’s sentiment.
As we advance, a change in polarity could see the 50-SMA at R136.00 underpin the price, providing support to a potentially sustainable recovery, with the next hurdle being resistance at R139.07. The longer-term reversal could lead to a test of the Fibonacci midpoint at R143.51, where the 200-SMA (orange line) could create a challenging resistance, with higher volume likely needed to sustain any price moves above this level.
However, volumes are declining, suggesting that the current bullish run could run out of steam. Should the 50-SMA fail to hold the price at its currently elevated levels from the early November bottom, the breakout point of the channel could come back into focus at R131.80. At this level, the 25-SMA (green line) could also hold potential buyers, which could prevent an additional downturn toward the prior demand zone at R127.85.
Summary
Since reaching a bottom of the downturn earlier this month, Discovery’s share price has shown promising signs of a potential retracement, with the breach of the 50-SMA suggesting a bullish shift in the market’s sentiment around the stock. Should the price remain above this level at R136.00, the retracement could continue into a sustainable uptrend, with the next potential hurdle established at R139.07.
Sources: Koyfin, Tradingview, Discovery Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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