Technical analysis: Harmony seeks low-end base

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Johannesburg - The chart of Harmony Gold is a great example of the benefit of using technical analysis for long-term investing. Harmony has reached its long-term downside target and is showing signs of basing. This action will be of interest to investors.

Harmony: Trying to bottom.

Investment strategy: Wait for a buy signal.

Long-term trend: Technically still down, but improving.

(Monthly)

- Harmony remarkably reached its downside target from a massive symmetrical triangle (lines 1 and 2), which broke down below line 1 in August 2012. (The price at the break down was above R70, and the target was to R25).

- Since reaching that target last year it has been consolidating, in what looks like an inverse head and shoulders (labelled S-H-S?). It needs to close above line 3 (R40.50) to confirm this new bullish pattern.

- Investors should buy if it gives a monthly close above line 3 (R40.50). That will set up a minimum upside breakout target (labelled B/O) of R68.40, and more than likely higher. For example, it could go as high as the R100 level.

- Stop-loss once that breakout occurs will be a monthly close below R30. (A monthly close is the closing price on the last trading day of any particular month).

* 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.


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