CO L UMN
•••
SUSARI GELDENHUYS
SAFEX SCENARIOS WITH SUSARI
Market
discounts all
information
OVER THE PAST SEASON
THE SOUTH AFRICAN
SUMMER RAINFALL AREA
EXPERIENCED ONE OF
THE WORST DROUGHTS
SINCE THE 1991/92 SEASON.
INTRODUCTION
Certain analysts are even of the
opinion that the drought can
be compared with the 1972/73
drought. Producers are looking
for a way out and are compelled
to investigate alternative sources
of income. Various opportunities
exist on SAFEX, but it is difficult
to make good investment decisions
in the current volatile market
environment. However, two general resources are available in the
form of fundamental analysis and
technical analysis, which will contribute to a higher probability of
success when such an investment
decision is considered. Fundamental analysis involves the analysis
of macro-economic information
and the effect thereof on market
prices, as discussed in a previous
article. Technical analysis involves
the analysis of the conduct/actions
of market participants or, more
specifically, price fluctuations as
a result of the reaction of market
participants on new information.
This conduct is reflected in prices and quantified by means of
graphs, by making use of a
variety of techniques and
indicators in an attempt to
identify buying and selling
opportunities. This article
will focus on the technical
aspects.
Assumptions
History
repeats itself
Trends
exist
TECHNICAL ANALYSIS
Graph 1: Basic Assumptions of Technical Analysis
1. Definition
SOURCE: COMPILED BY THE AUTHOR
Technical analysis utilises
the ability to capture the conduct
nite turnaround can be observed.
of market participants - even the
This turnaround can usually be
psychological factors which influlinked to changing fundamental
ence the market. The assumption
underlying factors. Finally, techis made that all the underlying
nical analysis assumes that history
fundamental factors and human
repeats itself, which implies that
mass psychological influences or
human conduct remains reasonmarket sentiment which influence
ably constant over time.
the market price have already been
discounted in price movements.
3. Market price trends
This makes an analysis of the marTaking the assumptions into acket so much easier since only the
count, accurate technical analysis
market movement is taken into ac- depends upon the different trends
count and not the reasons for the
which prices can follow, since
movement. Trading opportunities
different technical indicators have
can be recognised and executed
been developed to function more
quickly and easily, which offers
effectively in different market conanalysts the opportunity to make
ditions. Prices can be in a trending
real-time investment decisions.
phase (represented graphically by
Graph 3), or in a trading phase
2. Fundamental assumptions
(represented graphically by Graph
The basic assumptions of technical
2). The first