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.
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.