ARTICLES

Resilient and the 65-day EMA

The tactic employed by overseas short-sellers to take a short position in a well-traded share, publish a damning report and then close out the short position for a substantial profit is not exclusive to Viceroy. Our own 36ONE Asset Managers have done the same with the Resilient group of companies (including NEPI, Greenbay and Fortress), claiming that the company only achieved its impressive market rating by buying and selling shares between members of the group to enhance both volume and price.

36ONE's damning and apparently well-researched 50-page report was at first circulated anonymously, but they have since acknowledged authorship. The share price of Resilient has off-loaded half its value on very large volumes - so 36ONE is in an excellent position to close out whatever short position it has and make a killing. The question now for private investors must be, "Should I buy in at these lower levels?" On the face of it some of the best-performing property shares on the JSE are available for half-price. But it is always wise to be cautious - Resilient's share price is still falling and maybe there is substance to the 36ONE's report. We advise the use of a 65-day exponentially smoothed moving average. Consider the chart:

The 65-day exponential is much more sensitive to the daily market movements than the equivalent simple moving average because it weights the more recent prices more heavily and the older prices less heavily. The effect is a moving average which follows the trend more closely.

In our experience, when a blue chip share like Resilient falls heavily like this, waiting for it to break up through the 65-day EMA usually gives very good timing without significant risk.  

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