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Technical analysis: FirstRand is bearish

February 26 2013 at 08:00am

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Colin Abrams

Leading banking stock FirstRand has broken short-term support and is pointing to a lower short-term target, as shown on its chart. This is a chance for traders to sell short.

FirstRand: A short-term top

Recommendation: Traders sell short. Investors hold.

Trend: Short term down. Medium term sideways. Long term up.

Strategy: Sell short on a minor bounce towards line 1.

(Daily chart)

n FirstRand has formed a head and shoulders pattern (as labelled), which is bearish.

n This pattern is pointing to a minimum downside target of R28.70 (based on the height of the pattern projected down).

n The only short-term positive is that its stochastic oscillator (on top) is giving a positive divergence (that is, higher low) from its oversold level, which typically warns of a rally to come.

n For now, the pattern downside target should take preference, and traders can sell it short on a minor bounce back above R31, ideally closer to R31.30 (line 1).

n Note, the above will be negated if the price closes above line 2 (R32.20), which will in fact be a signal to reverse and go long again (buy).

n The initial stop loss for the short position is a close above line 2 (R32.20).

Colin Abrams is an independent technical analyst. To subscribe to his recommendations, or attend his courses, see www.themarket.co.za.


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