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The JSE resources 10 index started an expected sell-off yesterday (Wednesday), having hit a significant resistance line, as shown on its chart. This will eventually result in another buying opportunity however.
JSE Resources 10 index – Correction mode begins
Recommendation: Buy again lower down
Current Trend: Up on all main timeframes but overbought.
Strategy: Start buying again from the 38 800 level.
(Weekly)
Chart Setup: After a phenomenal run in the resi 10 index it has now reached important resistance at line 1 on its weekly chart. (Our original buy signal was then it broke out above line 3).
- Yesterday it sold off dramatically from there, and is likely to still go lower before becoming buyable again (for large-cap resi stocks)
- Its weekly Stochastic is overbought, but the really big correction is only likely after the next rally.
Strategy Details: While we had advised to take profits in large-cap resi stocks a few days back, right now it’s best to wait for more downside, e.g. to the 38 800 level on this index, to buy again (on a reversal day/candle up).
Target: Now that it’s reached line 1 (41 550), look for a correction to the 38 800 level (it can go a bit lower than that). Target then back to test line 1 at 41 700.
Stop-loss: A closing price below 37 200 on this index, as the guide for resi stocks. (To be tightened a lot as it nears the target of line 1 again).
- 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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