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SP500 Index

The S&P and Dischem

The past week has been interesting from a market point of view. Consider the chart of the S&P500:

S&P500 Index
S&P500 Index – Chart by ShareFriend Pro

The S&P500 index fell heavily on Thursday, the 10th and then staged a recovery of sorts before falling even more heavily a week later on 17th and then mounting a second recovery. Clearly, there is significant bullish sentiment still in the market – enough to make these recoveries possible. But the observant technician will note that the correction, which began on the 8th of August, and which we discussed in a previous article two weeks ago, is still in place. What is evident is that there is a considerable degree of uncertainty and hence volatility in the market. Obviously, the key level now is 2410 – the previous low. Any fall below this will signal that this is a significant correction. At the same time, a rise to a new record high or even close to a new record high will indicate that the correction is over and the underlying bull trend is resuming.

Of course, as indicated earlier, it is our opinion that the underlying bull trend is solid and will resume sooner or later. The question is exactly when. In other words, just how long will this correction last and how deep will it be. Right now, it’s low is less than 3% below the all-time record high – so it might still progress somewhat further.

CUP-AND-HANDLE

Some months ago, shortly after its listing, we recommended that you should invest in some Dischem shares. The shares have performed very well as Dischem fulfilled its potential to have a Dischem store wherever there was a Clicks.

Recently, however, Dischem shares have gone through a cup-and-handle (sometimes called “cup-and-lip”) formation. This formation was first identified by Willaim o’Niell of The Investors’ Daily in America. It is a strongly bullish formation which occurs during an existing bull trend. Consider the chart:

Dischem
Dischem (DCP) – Chart by ShareFriend Pro

You can see here that Dischem is in a well-established bull trend and then the “cup” formation occurs, immediately followed by the “handle” or “lip”. Once the share breaks above the previous high point in the “lip” it should move up strongly – and this is exactly what Dischem did on Friday.

It is rare to find a predictive technical formation so early in the listing of a new share, but in this case, we feel optimistic that Dischem should move up further following this formation.

PDSNET Progress data services

PDSNET Progress data services

PDSNET (Progress data services) specialises is the development and sale of local as well as internationally acclaimed share trading software and educational programmes. Over the last 30 years, we have become the largest local provider of end of day stock market data, providing data of all equities quoted on the JSE (Johannesburg Stock Exchange), Futures, Unit Trusts, Currencies and Commodities as well as many of the major International Indices.