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Dow looking jittery

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Traders and investors worldwide are eagerly awaiting news from the United States about whether there will be a government debt default or not. Either way, expect market volatility. We show a chart of the Dow Jones Industrial Average, which is currently in a nervous sideways range. We also show a chart of South Africa’s Standard Bank. It’s been a laggard but is offering trading opportunities in both directions.

DOW JONES – NERVOUS

Trend: Short and long term up. Medium term sideways.

Strategy: Trade in the breakout direction to come.

* The Dow formed a broadening formation in May/June and has got within a few points of its minimum upside target of 12 770.

* Over the short term it’s trading between lines 3 and 4; in the process it’s forming a “potential” double top pattern. A close below line 3 (12 295) is needed to confirm that pattern. A double top is a bearish pattern as long as the price closes below its support level (line 3 in this case). But a breakout above line 4 (12 752) will be bullish.

* The short-term stochastic (on top) is giving a negative divergence: ie, it isn’t making a new high, which is a bearish set-up for the short term.

* Wait for the breakout direction. If it closes above line 4 (12 752) for two consecutive days, then buy for a rally to 13 200. But a close below line 3 (12 295) will be a sell short signal for a drop to retest its June low at 11 860.

* The stop for a breakout is a close below 12 570 and for a breakdown short signal the stop is a close above 12 550.

SBK – SIDEWAYS RANGE

Trend: Sideways.

Strategy: Buy at support/sell short at resistance.

* Standard Bank is in a sideways pattern between lines 1 and 2. In addition, lines 1 and 3 form a descending triangle. There’s a lot of resistance at the R101,70 to R102,40 level (formed by lines 3 and 2 respectively). As a result, it won’t break that level easily.

* The short-term stochastic is relatively oversold (bullish).

* Trade the boundaries between line 1 (R95,05) and line 2 (the R102 level): ie, buy off line 1/or sell short off the R102 level – do whichever happens first.

* For shorting off/near R102 the target will be R97,50, to take half trading profits, and remaining profits closer to line 1 (R95,05). For buying off/near line 1 the target will be R101,50 to R102. The stops will be outside the boundaries: ie, for shorting it will be a close above R102,60 and for buying a close below 9500c.

* When a breakout eventually occurs, enter in the direction of that breakout: ie, buy a close above R102,50/sell short a close below 9500c for a 600c/share move.

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