Sasol Limited (-3.54%) and FirstRand Limited (-3.36%) were notable contributors to the downturn, causing the index to dip below various SMAs and playing into a potential breakdown and retest technical pattern. With limited economic releases anticipated for the week, traders may respond to the technical setup of price movements, potentially leading to the emergence of a fresh directional trend.
Amid a calm day of economic releases, the JSE Top 40 Index (JSE: J200) experienced a gradual decline. At the same time, the USDZAR currency pair maintained its stability despite the US Dollar weakening on increasing bets of a rate cut from the Federal Reserve in March.
Technical
On the daily chart, the bears teased a breakdown of the ascending channel last week, with the index falling below the 25-SMA (green line) and the 50-SMA (blue line). Support was found at the Fibonacci midpoint of 67,026.22 before the breakdown level underwent a retest. Since then, a change in polarity has resulted in the 50-SMA resisting a sustainable retracement, opening the door to a potential downtrend.
The breakdown and retest leaves the index looking for support again at 67,026.22, and if this level breaks down, a bearish run could be triggered. The 61.8% Fibonacci golden ratio could then act as support near 66,158.29, but if the index moves any lower, the trend could persist toward 65,059.48 and 64,594.54.
However, if the support at 67,026.22 continues to hold, the market could attempt another retracement of the channel breakdown. The price may need to clear the 50-SMA at 68,067.39 to sustain this bullish run, after which it could fall back within the channel formation toward 70,048.64 and 71,453.48.
Summary
While a channel breakdown has occurred on the 1D chart of the JSE Top 40 Index, the retracement failed to be sustained, suggesting confirmation of the initial breakdown. As a result, support at 67,026.22 could be all that stands in the way of a longer-term contraction toward 66,158.29.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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