Horizontal Count on Afrimat

29 May 2019 By PDSNET

Afrimat was originally a construction company which specialised in the supply of what are known as “aggregates” to the road-building industry. With the collapse of the construction industry following the 2010 Soccer World Cup, Afrimat set about re-inventing itself to become a mining company. The decision to rely less on the road-building industry has paid handsome dividends. It began with the acquisition of the Demaneng iron ore mine in the Northern Cape. More recently (on 8th April 2019) it announced that it had put in a firm offer to buy Universal Coal Plc., a company listed in Australia but which has operations in South Africa. Afrimat has offered R2,1bn for the business which mainly supplies coal to Eskom through contracts valid until 2023. But from a private investor’s point of view, what makes Afrimat really interesting is its extended sideways market going back to mid-October 2016.

Afrimat (AFT) August 2016 to May 2019 - Chart by ShareFriend Pro
Here you can see a conventional candlestick chart with the extended sideways market defined by upper and lower horizontal lines. The upside break-out is visible in the top right-hand corner. You can also see the low point of the sideways market which occurred at 2249c on 21st August 2018. In a normal market, businesses strive to grow and their share prices reflect that growth over time. But sometimes, when that growth is not reflected in the share price for an extended period because of market uncertainty (as in the case of Afrimat), it results in a build-up of value which is not reflected in the share’s price. Once an upside breakout is achieved from that sideways market there is often a sharp rally. The technique of a horizontal count in Point and Figure charting allows us to measure the upward potential of a break from a sideways market. Point and Figure charting is a very old charting method which strives to exploit the changes in direction of a share’s price. To do this a one-dimensional chart is constructed which measures price on the Y-axis, but does not measure time on the Y-axis. Instead, it measures changes in direction. The following is a point and figure chart taken from Metastock which shows the sideways pattern in Afrimat for the same time period as the chart given above with the upside breakout which happened yesterday.
Afrimat (AFT) Horizontal Count with a Point and Figure Chart 2016 to 2019 - Chart by Metastock
The horizontal count allows us to calculate how far up the Afrimat share price will go now that it has broken out of its sideways market. Our calculations indicate that it will go as far as 4244c – which is a gain of 33% from current levels. Unfortunately, the technique does not allow us to determine how long it will take to reach that level. Horizontal counts are generally around 70% to 80% accurate, although they tend to be on the conservative side. So this might well be an opportunity to make a solid capital gain on a company which is in the throes of re-inventing itself. In the PDSnet Online Investment Course, there is a module on point & figure charting  - click here.  


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Gold and Harmony

In our last Confidential Report, published on 6th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold

Reverse Takeover

At the end of October 2023, Mix Telematics (MIX) was a relatively small fleet management company with a market capitalisation of just R2,3bn listed on both the JSE and the American NASDAQ. Its shares on the JSE were wallowing at a low of 380c. This compares with its competitor, Karoo (KRO), also listed on the JSE, but which was at the time, more

Rare Opportunity

You may not have been aware of it, but last week, between Monday and Friday, there was an opportunity to make an 80% profit on your capital. This opportunity occurred because of insider trading on a little known and traded share called Quantum Foods (QFH) in the poultry and animal feeds business.

Generally, the poultry business is

Excessive Bullishness

On Friday last week, the S&P500 index posted yet another new record closing high, but this time just one point higher than the previous day at 5088. This means that the index, which measures the progress of the 500 largest companies on Wall Street, has been climbing without a significant correction for nearly four months. Consider the chart:

Lessons from Transcap

As a private investor it is very important that you study what has happened in the past and learn from it. The progress of Transaction Capital (TCP) has provided us with an excellent opportunity to examine and learn from a complete cycle in an institutional favourite share. We can examine the entire cycle and see how to profit from it. In this regard, it is important

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about

4Sight

The world has, in the last twenty years, entered what has been characterised as the 4th Industrial Revolution (4IR). It has been described as “... the biggest structural change of the past 250 years — a transformation of scale, scope and complexity unlike anything humankind has experienced before.” In simpler terms, 4IR refers to the digital convergence of

The Great Bull Resumes

On the 12th of June 2023, we published an article, headed "Bull Trend?". In that article we suggested that, after a 25% correction, the great bull market on the S&P500 which began in March 2009 was still intact and would, in time break to a new all-time record high, above the high

CA Sales

In recent years, the JSE has not seen many high-quality, exciting companies listing on the exchange. One of those few is CA Sales Holdings (CAA), which offered both fund managers and private investors an excellent opportunity to make a significant capital gain last year.

CAA is a company which has grown

Two Elections and Two Wars

As the New Year begins, private investors should consider the most important factors which are likely to impact on the prices of shares and the profits of companies listed on the JSE. Some of these factors are local, like the general election which is expected to take place sometime in May, and some are international like the oil price, the