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Resources stocks have led the JSE’s downward trend over recent weeks and months. When will the current correction come to an end? We try answering this question by looking at a chart of the JSE resources (Resi) 20 index. We also show the chart of Amplats (formerly called Anglo Platinum [JSE:AMS]), one of the larger Resi stocks on the JSE. It’s nearing an important support level on its chart. The Resi 20 index is also testing price support and the chances of a rally off support are good.
RESI 20 INDEX – AT SUPPORT
Trend: Short and medium term down, but oversold. Long term up.
Strategy: Buy Resi stocks/SatrixRes on a close above line 3.
* The Resi 20 is testing important support at line 1 (52 765). Lines 1 and 2 form a large symmetrical triangle. Currently, the price is moving into a corner between lines 1 and 3 and could break out in either direction.
* The daily stochastic oscillator (on top) is giving a positive divergence from its oversold region, which is warning of a rally to come.
* Therefore, buy large cap resources stocks/or the SatrixRes on a close above line 3. (Line 3 was at 53 950 on 30 May and declining at an angle of 200 points/day thereafter). Conversely, two consecutive closes below line 1 (52 765) will break support and necessitate selling short (with caution) – but do so only after a bounce.
* A breakout above line 3 will set up a move to line 2 at least (57 700 level). (At the time of writing it was at 53 338.) The stop for buying will be a close below line 1 (52 765). A breakdown below line 1 will set up a downside target to 46 000.
AMPLATS – OVERSOLD
Trend: Short and medium term down but oversold. Long term sideways.
Strategy: Buy at current levels or better.
* Amplats has dropped over recent months but is now near line 1 support (R610 to R604). It’s setting up for a rally: Lines 1 and 2 form a large broadening formation.
* The daily stochastic is giving a series of positive divergences, which is a very bullish set-up and warning of a rally to come.
* Traders buy at current levels or better: ie, as close to line 1 (R604) as possible. More conservative traders wait for a close above line 3 to buy (R625,50). But in this particular case, buying before that breakout is acceptable and will present a good risk/reward ratio (ie, you will be risking a small amount to make a far larger amount).
* The upside target is its 200-day moving average at the R678 level for profit taking. (Note: It will first need to break out above line 4 at R650.)
* The initial stop-loss is a close below line 1 (R604). If or when it closes above line 4 (R650), raise your stop to a close below R630.
Please note: For more recommendations and charts by the author on shares, indices, commodities and currencies please go to www.themarket.co.za.
RESI 20 INDEX – AT SUPPORT
Trend: Short and medium term down, but oversold. Long term up.
Strategy: Buy Resi stocks/SatrixRes on a close above line 3.
* The Resi 20 is testing important support at line 1 (52 765). Lines 1 and 2 form a large symmetrical triangle. Currently, the price is moving into a corner between lines 1 and 3 and could break out in either direction.
* The daily stochastic oscillator (on top) is giving a positive divergence from its oversold region, which is warning of a rally to come.
* Therefore, buy large cap resources stocks/or the SatrixRes on a close above line 3. (Line 3 was at 53 950 on 30 May and declining at an angle of 200 points/day thereafter). Conversely, two consecutive closes below line 1 (52 765) will break support and necessitate selling short (with caution) – but do so only after a bounce.
* A breakout above line 3 will set up a move to line 2 at least (57 700 level). (At the time of writing it was at 53 338.) The stop for buying will be a close below line 1 (52 765). A breakdown below line 1 will set up a downside target to 46 000.
AMPLATS – OVERSOLD
Trend: Short and medium term down but oversold. Long term sideways.
Strategy: Buy at current levels or better.
* Amplats has dropped over recent months but is now near line 1 support (R610 to R604). It’s setting up for a rally: Lines 1 and 2 form a large broadening formation.
* The daily stochastic is giving a series of positive divergences, which is a very bullish set-up and warning of a rally to come.
* Traders buy at current levels or better: ie, as close to line 1 (R604) as possible. More conservative traders wait for a close above line 3 to buy (R625,50). But in this particular case, buying before that breakout is acceptable and will present a good risk/reward ratio (ie, you will be risking a small amount to make a far larger amount).
* The upside target is its 200-day moving average at the R678 level for profit taking. (Note: It will first need to break out above line 4 at R650.)
* The initial stop-loss is a close below line 1 (R604). If or when it closes above line 4 (R650), raise your stop to a close below R630.
Please note: For more recommendations and charts by the author on shares, indices, commodities and currencies please go to www.themarket.co.za.
