‘Death cross’ looms on local stocks

A TRADING pattern looming in stock charts suggests a threeweek sell-off that drove local shares to a seven-month low still has room to run.

The all share index slipped 1.47 percent to 49 028.36 points by the close on Friday.

The gauge is down 11 percent since its record high on April 24, entering a so-called correction, amid a rout in emerging-market stocks spurred by anticipation of the first increase in US interest rates since 2006 and as economic data from China adds to fears of a global slowdown.

The average level of the all share index over the past 50 days is close to dropping below its 200-day mean, a phenomenon known as a death cross.

This last happened on November 18, which was followed by a 6 percent decline in the gauge over the next month.

The index will probably fall to levels last seen in October, according to Neels Heyneke, a technical analyst at Nedbank Group.

That implies another drop of about 5 percent is in the offing.

“In the very short term we should get a bounce from here, but I’m not calling a bottom on the market,” he said on Friday.

“We’ve just reached some short-term target levels here, but I would be surprised if we don’t go to the October lows.”

The slump in the stock market and a slide in the rand this week to nearly a 14-year low underlines the challenges faced by President Jacob Zuma’s administration in reigniting investment and growth in the struggling economy.

The government is struggling to manage and fund stateowned companies.

At the same time, slowing growth in China threatens the top destination for South Africa’s raw materials.

“It’s tough times,” said Troye Brady, an analyst at Noah Capital Markets .

“We’re in unprecedented times. We haven’t seen China this weak in a long time and it’s a major market for South African mining companies,” he said. – Bloomberg