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AFTER A STRONG RUN in October, the JSE All-Share index is undergoing a short-term correction. Though some analysts believe it's a renewal of the prior bear market, the charts (as I see them) say "not so".
We show the All Share's chart, with an important support level to monitor. We also look at a chart of the gold price, which continues to hold firm and still has higher targets in place. Meanwhile, the current correction on the All Share index can last a while longer but will lead to another buying opportunity.
ALSI - TEMPORARY CORRECTION
Trend: Up, despite current pullback.
Strategy: Buy (or re-enter) lower down.
* The All Share is trading in a large rising wedge (lines 1 and 2). It recently rebounded down off line 2 resistance and is still vulnerable to more short-term downside.
* The daily stochastic oscillator (on top) is still falling and is not yet oversold, indicating caution is still advised.
* Traders look to buy in the 25 550 to 25 400 zone (coinciding with the 50-day moving average and line 1 support respectively). Note: A more conservative entry will be to buy on a closing price above line 3 (26 300). Investors keep holding stocks regardless.
* Once it closes above line 3 look for a move to 27 500. There's also a larger target here, at 30 000.
* Traders place your stop-loss as a close below line 1 (25 400). If that stop is triggered, the index could fall to as low as 23 000 - a signal for traders to then sell short the bounces.
GOLD (US$) - HIGHER TARGETS
Trend: Up.
Strategy: Buy on pullbacks.
* The US dollar gold price is holding above line 3 support (US$1 045) over the short/medium term. There are two higher targets in place. The first one is $1 105 (the height of triangle 1-2 projected up).
* There's also a longer-term target of $1 350, based on a large broadening pattern in 2008 (not shown).
* Over the short term the stochastic oscillator is oversold again, indicating a good chance of another rally starting at any time.
* Therefore, buy on either a close above line 4 ($1 067, spot price) or on a pullback to line 3 ($1 045) - whichever happens first. Once we close above line 4 look for a rally to the $1 105 (minimum) target. Traders start taking short-term profits into strength from there. Pullbacks will then remain buyable all the way up. Investors keep holding gold bullion.
* The initial stop-loss (for traders only) will be a closing price below line 3 ($1 045).
* Please note: For more recommendations and charts by the author on shares, stock indices and commodities please go to www.themarket.co.za.
