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Findi 30 for bullish fundis

A significant development took place recently on the chart of the JSE’s Findi 30 index (financial and industrial 30 index). We show its price chart, together with (what is) a new breakout in price there. We also show a chart of investment company Reinet Investments [JSE:REI], a large-cap JSE stock. Its chart isn’t unlike that of the Findi 30. Overall, both charts are looking bullish and point to clear price targets.

Findi 30 index – bullish breakout

Trend: Short term up. Medium term sideways. Long term up.

Strategy: Buy Findi stocks on a pullback.

* After moving sideways for a number of months in a broadening formation (lines 1 and 2) the JSE’s Findi 30 index has now given a decisive breakout above line 2. (Note: Its classic bounce off its 200-day moving average in March.)

* It’s pointing to a minimum upside target of 33 000, measured as the height of the broadening formation projected up. (At the time of writing it was at 31 200.)

* However, over the very short term the index is overbought, as seen from the stochastic oscillator (on top). Consequently, expect a temporary pullback and then up again.

* Therefore buy Findi 30 component stocks on a pullback to line 2 (30 490). Focus on those stocks that have similar-looking charts to this index: ie, those closely correlated to the Findi 30. (Another option is to buy the SatrixInd and SatrixFin counters, which together will approximate the Findi 30.)

* Place your stop-loss as a close below 29 500, based on this index.

Reinet – finally moving?

Trend: Short term up, but overbought. Medium and long term sideways.

Strategy: Buy on a pullback.

* Reinet has closed above line 2 of a large broadening formation (lines 1 and 2). That’s a significant development after almost six months of sideways price action.

* The only caveat is the overbought stochastic. Odds therefore favour a pullback to lines 3 or 4 before it continues up in earnest.

* Buy it on the first decent pullback: eg, a pullback to line 3 (1165c) but ideally a pullback to line 4 at 1150c/1155c. (It was trading at 1190c at the time of writing.)

* The upside breakout is pointing to a minimum target of 1270c: ie, the height of the broadening formation (lines 1 and 2) projected up.

* Place your initial stop-loss as a close below 1135c. Once it closes above 1210c, move your stop up as a close below 1160c. As it nears the 1270c target use a breaking of its prior two-day low as your trailing stop. Note: Lock in partial profits at 1250c on the way up to reduce your overall risk.

Please note: For more recommendations and charts by the author on shares, indices, commodities and currencies please go to www.themarket.co.za. 
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