Technical analysis: Rand prepares to break out

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A renewed bout of weakening is taking the rand close to a break-out level against the dollar. As shown, such a break-out will be a signal to sell short the rand again.

Dollar/rand: Monitor for a break-out.

Recommendation: Sell short the rand on a break-out.

Trend: Short and medium term sideways. Long-term rand weakness.

(Daily)

- The dollar/rand is trading in a short-term channel (lines 2 and 3). The odds favour an upside break-out of this channel, that is, for the rand to weaken.

- Sell short the rand (buy the dollar) on a closing price above line 3 (R10.81 – spot price).

- If that break-out occurs, it will set up a minimum target of R11.12, based on the height of channel 2-3 projected up.

- But if the rand weakens back to line 1 first (R10.50), sell short the rand there.

- In the unlikely event of a break-down below lines 1 and 2 (R10.47), it will point to R10.39, and maybe further (stronger).

- For shorting a close above line 3 (10.81), the stop will be a close below R10.60. And if shorting the rand off line 1, the stop will be a close below R10.46.

* Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, please go to www.themarket.co.za.


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