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CO L U M N
SUSARI GELDENHUYS
SAFEX SCENARIO’S WITH SUSARI
INTRODUCTION
The new season is nearing its
end and the harvest time is approaching. However, uncertainty
regarding the current season still
prevails, which makes it difficult
for producers to make marketing
decisions. There are two general
aids in the form of fundamental
analysis and technical analysis
which will contribute to a higher
probability of success when such
investment decisions are considered.
Fundamental analysis and the
basis of technical analysis were
discussed in previous articles and
the aim of this article is to expand
on the different technical indicators which can be used in different
market conditions in order to
identify more accurate buy and
sell levels. The technical indicators
can be divided into two broad
categories, namely leading and
lagging indicators.
LEADING INDICATORS
Leading indicators aim to predict
future price movements, particularly by determining the extent
to which markets are oversold or
overbought. The Relative Strength
Index (RSI) is considered as one
of the most popular leading indicators used in modern technical
analysis. The RSI is usually a 5, 9
or 14 days price following oscillator, fluctuating between 0 and
100, which allows for easy identification of buy and sell signals,as
well as being comparable with
other indicators. The RSI can be
26 JUN/JUL 2016
Figure 1: RSI-interpretation
SOURCE: COMPILED IN THE METASTOCK (2011) DATA BASE.
analysed in different ways, but the
so-called “tops and bottoms” is
the most general analysis. When
the RSI trades above 70, an overbought market is indicated, after
which a selling signal is generated
when the RSI breaks the 70-level
from above. On the other hand,
an oversold market is indicated
when the RSI moves to below
30, after which a selling signal is
generated when the RSI breaks
the 30-level from below. Both the
above interpretations are illustrated
graphically in Figure 1, where a
buy signal is indicated by the blue
arrow and a sell signal is indicated
by the red arrow.
The Stochastic Oscilator is also
regarded as a popular indicator in
technical analysis. This indicator
makes a comparison between a
security's most recent price and
the closing price over a given
period of time. The indicator is
based on the theory that the closing prices over a certain period
will move closer to the previous
high points (low points) as prices
move upwards (downwards). The
Stochastic Oscilator calculates two
• SENWES Scenario
lines, namely the %K-line and the
%D-line.
The %K- and %D-lines are
expressed as a value which oscilates
between 0 and 100, where an
overbought and oversold market
are indicated should any of the
two lines move to below or above
a certain value (values are normally
set at 20 and 80). In addition a sell
(buy) signal is generated when the
%K-line crosses the %D-line from
the above (below) (graphically
illustrated by red and blue arrows
in Figure 2 respectively). Some
technical analysts prefer to only
identify sell and buy signals when
the Stochastic Oscilator moves
into overbought or oversold areas
respectively.
LAGGING INDICATORS
In contrast to leading indicators,
lagging indicators are not aimed
at predicting future price movements, but rather at following
price trends. The Moving Average
(MA) is regarded as one of the
oldest, most flexible and generally used technical indicators and
can easily be applied to any price