The S&P and Dischem

28 August 2017 By PDSNET

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

S&P500 Index August 2017 - Chart by ShareFriend Pro

The S&P500 [glossary_exclude]index[/glossary_exclude] fell heavily on Thursday the 10^th and then staged a recovery of sorts before falling even more heavily a week later on the 17^th 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 8^th 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 [glossary_exclude]close[/glossary_exclude] 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 [glossary_exclude]bull[/glossary_exclude] [glossary_exclude]trend[/glossary_exclude] is solid and will resume sooner or later. The question is exactly when. In other words, just how [glossary_exclude]long[/glossary_exclude] 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 FORMATION

Some months ago, shortly after its listing, we recommended that you should invest in some Dischem [glossary_exclude]shares[/glossary_exclude]. 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”) [glossary_exclude]formation[/glossary_exclude]. This formation was first identified by Willaim o’Niell of The [glossary_exclude]Investors[/glossary_exclude]’ Daily in America. It is a strongly bullish formation which occurs during an existing [glossary_exclude]bull[/glossary_exclude] [glossary_exclude]trend[/glossary_exclude]. Consider the chart:

Dischem (DCP) - Chart by ShareFriend Pro

You can see here that Dischem is in a well-established [glossary_exclude]bull[/glossary_exclude] [glossary_exclude]trend[/glossary_exclude] 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.  

DISCLAIMER

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