Jean Temkin
8 September 2008
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Johannesburg — IN THE midst of the reporting season, despite the economic slowdown, we've been pleasantly surprised by some results.
Interim and annual figures to the end of June include Eskom's shenanigans in the first quarter of this year, which cost companies dearly, and also take into account the near 50% oil price rise from January to June.
Additionally, they have been affected by the near five percentage point rise in interest rates in that period.
High interest rates clobbered the building industry from 1993 to 1998, when interest rates rose 67%, with prime reaching 25,50%. From 2005 to date, we've experienced a 47% rise in rates, which has adversely affected the residential market, but the results show that most major construction companies have not suffered from shock waves.
During the recent rate rises, the JSE construction materials index rose 315%, despite three market-led major corrections over the past 14 months.
The chart shows that, rising from the third dip, the moving average convergence/divergence (MACD) plotting crossed upward through its moving average in mid-August. This correction happened well below the MACD's horizontal zero line and strengthened the longer-term buy signal. Since July last year, accumulation has been strong, and the chart shows a substantial increase in volume over the period.
In the last correction, the sector was in danger of losing its long-term bull trend when its short-term moving average dropped to the bottom of the stacking position. A bull trend is confirmed when the stacking order of moving averages is short-term at the top, medium-term in the centre and long-term at the bottom.
The latest recovery has pushed the short-term moving average almost back into top position. A combination of these signals bodes well for the longer-term future of the construction index.
The major lift began in mid-2006 and its standard deviation channel (not shown) displays its current equilibrium at 89 which is seven points above its present level. It is supported at about 64 and its resistance level is 113. From a broken triple top , last month the index's point-and-figure chart gives a count to 101 in the longer term.
In the short term, the JSE construction materials index is declining from an overbought position and may lose more ground, giving investors a chance to top up holdings.
Following excellent results, Group Five is still overbought, while M&R is nudging downwards. W hile their prices are declining, their accumulation/ distribution plottings are steady, showing that shares coming to the market are snapped up. WBHO's longer-term outlook is good, but may lose ground in the short term. PPC has hit some tough resistance at around R32 and a breakthrough is needed for it to reach its R42 count.
Aveng is overbought but any loss will be slight.
Low gold and platinum prices cast gloom over mining stocks. The future plotting looks good for platinums, while gold may lift slightly in the short term. A falling rand bodes well for Newgold, but a better gold price is needed for a sustained revival.
As oil has dipped through its $111 support, Sasol is heading down in oversold territory towards its R355 down-count. Oil and Sasol's future plottings are upwards.
Urged on by Shoprite's good results, food and drug companies are in favour.
Overbought Shoprite may lose a little before continuing upwards. Spar is likely to pause for a while and Pick n Pay will probably continue its volatility.
The general retail sector has also confirmed a bull trend, but, overbought, may lose in the short term.
Jean Temkin is the author of More Charting for Profit, a textbook on technical analysis and has interests in M&R, Newgold, Pick n Pay and Reunert.
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