Vodacom is one of the strongest stocks in the Top40 index, having recently broken out to a new all-time high. As its chart shows, it is now consolidating before its next move
Recommendation: Enter in new breakout direction.
Trend: Up on all main timeframes.
Strategy: Buy a close above R120, or sell short a close below line 3, whichever happens first.
n After breaking out above important resistance (line 2) last month, Vodacom has formed a “potential” head and shoulders pattern. It can break out of this pattern in either direction.
n The short-term stochastic oscillator (on top) is turning up from an oversold level, which is typically bullish.
n Traders buy a close above R120, or conversely, sell short a close below line 3 (R116). Do whichever happens first. The odds favour an upside breakout in my opinion, resulting in a head and shoulders continuation pattern.
n For an upside breakout, the target will be R126.20, but for a break down it will be to R110.50 (measured as the height of the head and shoulders projected down).
n For buying, the stop will be a close below R116.20. For a short signal, the stop will be a close above R120. Narrow the stop as it nears the relevant target, to a previous two-day high or low.
Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, go to www.themarket.co.za.