Bidvest, a leading industrial stock on the JSE, has been moving sideways for the past four months. It can break out of this sideways range in either direction, but the probabilities favour an upside breakout. A prudent trading strategy for it is provided below
Recommendation: Wait for buy signal.
Trend: Short and medium term sideways. Long term up.
Strategy: Buy on a close above line 3.
n Bidvest has formed a symmetrical triangle in recent months (lines 2 and 3), and is building up for a breakout, which can be in either direction. (I do believe the odds favour an upside breakout).
n It is currently testing line 3 resistance at R185. I like the fact that it has climbed up line 1 so consistently since September last year.
n The short-term stochastic oscillator (on top) is overbought, which implies it is likely to drift down, back to line 1 before any upside breakout occurs.
n Buy it on a closing price above line 3 (R185). (More aggressive traders can buy it at line 1, at R179.60, if retested).
n Once it closes above line 3 (R185), it will set up a minimum upside target to R196.50, in other words the height of the triangle projected up.
n Initial stop loss will be a close below R179. But if buying on a pullback towards line 1 (more aggressive), place your stop as a close below R176.
Note that, in the less likely event of a breakdown below line 2 (R176), it will set up a drop to R166.
Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, visit www.themarket.co.za for further information.