Flash Note: Shoprite Holdings (SHP)

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Summary: Medium term bullish signals emerging but be mindful of short term technical barriers. 

Analysis Type: Equity Portfolio
Time Frame: Medium Term
Last Close: 12723c (could pull back to 11800c)
Stop-loss: 10500c

Within my technical toolbox, the Relative Strength Index has been a primary tool in analyzing charts over the last number of years. Used in various ways, the indicator has been useful in identifying momentum as well as forewarning about changes in trends well before it is visible in the price. Currently, a review of food retailer Shoprite reveals a potential change in medium term trend, driven by:

1. Bullish Divergence - recently we saw the price make a lower low while the RSI made a higher low, refuting the temporary weakness.

2. Key Support - the 125 level has been a key accumulation level over the last number of years, with evidence of strong buying activity in January 2012, October 2014, December 2015, January 2016 and September 2019. Currently the price is making attempting the regain this level as a support zone.

3. Whilst the price remains below the downward trend line going back to the peak of February 2018, the RSI has already broken the downward trend line resistance (see upper panel on chart). This is often indicative of underlying price strength.

4. The RSI currently trades at a 2-year high with a reading of 52 (above 50 can generally be considered the bull zone). What's interesting to note is that while the RSI is making a 2-year high, the price is 47% lower over the same period - a long term bullish divergence. 

Short Term Risk: The daily chart reveals the price currently testing the underside of the 200-day simple moving average - a level where short term resistance could be encountered. It should also be noted that the price has been trading below a downward trending 200-day SMA since June 2018 of which a break above should be monitored.

On the upside, bullish momentum would see 14600c and 15800c open up as a medium term targets.  

https://www.tradingview.com/x/cOEMOolY/



https://www.tradingview.com/x/iJu6OPjM/

Regards
Lester Davids

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