TECHNICAL ANALYSIS: JSE financial index seen approaching downside target

Financial shares have been hit hard on the JSE in recent months, largely on the back of a weaker rand. But there are signs the bottom may not be far off, as shown on a chart of the JSE financial 15 (fini) index.

JSE financial 15 index – Approaching downside target

Recommendation: Go long lower down.

Current Trend: Short and med-term down. Long-term up.

Strategy: Go long a reversal week up from slightly lower down.

(Daily)

Chart Setup: The fini 15 index has continued moving down sharply, and is nearing its minimum downside target from a medium-term head and shoulders (H/Sh) top. This chart gives a general view of what to expect from financial stocks going forward.

• Its MACD (on top) is oversold and giving a positive divergence, warning of a rally to come.

Strategy Details: Wait for a reversal week up to go long large-cap financial stocks, like banks in particular. In the meantime, if we get a reversal day/candle down, that can still be shorted by very short-term traders only.

Target: Minimum downside target to 15 430 i.e. the height of the head and shoulders projected down. (Note, this is based on its line chart i.e. closing price chart. Its candlestick chart points to a lower target e.g. 14 800). It is currently trading at the 15 950 level.

• Once it gives a reversal week up to buy, look for a move to retest its March high of 19 042. That will probably be later in the year. Take partial profits once this index reaches 17 900.
• In the meantime, line 2 resistance is at the 16 900 level.

Stop-loss: A daily close below the low of the reversal week up.

• In the meantime, for shorting, the stop will be a close above a reversal day down's high. Then use a prior one-day high as a stop after a 2-3 days drop.
  

• Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend trading courses, please go to www.themarket.co.za

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