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Finweek English Edition - - Market Place - Ed­i­to­rial@fin­ Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t

fer­rochrome pro­ducer Merafe’s at­trac­tive­ness re­sides in its strong cash­flow gen­er­a­tion, se­cure long-term sup­ply of ore re­serves, and the fact that it is one of the low­est-cost pro­duc­ers in the world. With no ma­jor ex­pan­sion­ary projects in the pipe­line, the com­pany ex­pects that from 2018 on­wards free cash flow will be ap­plied mainly to re­turn­ing cash to share­hold­ers in the form of div­i­dends and/or share buy-backs. Its strat­egy of re­duc­ing debt and pay­ing “sta­ble to in­creas­ing” div­i­dends is ap­peal­ing, mak­ing any pull-back a good op­por­tu­nity to go long, or reload. Merafe’s in­terim re­sults are ex­pected on 7 Au­gust. On the charts:

The com­pany re­gained mas­sive up­side mo­men­tum to­wards its 2010 highs af­ter re­tain­ing strong sup­port at 55c/share. It peaked at 200c/share in Jan­uary 2017 and pulled back sharply from a mega-over­bought po­si­tion on the monthly chart. Also, the rand strength­ened sig­nif­i­cantly against the dol­lar, which is a key fac­tor as most of Merafe’s prod­uct is sold in dol­lars. Re­cently bounc­ing on its ma­jor trend­line (dated back to 2014), and still in its short-term bear trend, sup­port re­tained above 108c/share would be a pos­i­tive sign.

How to trade it:

Go long: Up­side through 145c/ share would end the short-term bear trend and en­cour­age fur­ther gains to­wards 201c/ share. Breach­ing that level could see Merafe retest the 250c/share mark in the short to medium term. Main­tain a fair stop-loss.

Go short: Merafe would en­ter medium-term bear­ish­ness on down­side through the blue bold trend­line dated back to 2014 – sig­nalled below 108c/share. Go short through that level as down­side back to 83c/share could then en­sue. ■

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