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Technical analysis: Woolworths prepares to recover

Colin Abrams

After a sharp month of declines in January, retail stocks such as former leader Woolworths are attempting a comeback. Woolworths itself has given an upside breakout and is pointing to a higher target.

Recommendation: Traders buy or re-enter.

Trend: The short-term trend is technically down, but improving. The long-term trend is up.

(Daily)

n After falling sharply over the past month, Woolworths found support near its long-term support line (line 1) as well as its rising 200-day moving average.

n It has bounced back to form an inverse head and shoulders (labelled S-H-S). It has closed above line 2 (the neckline) to confirm this pattern.

n The daily relative strength index (on top) has higher to go before becoming overbought, after giving a positive divergence at its recent low (a bullish sign).

n Traders buy or re-enter for a rally to R72.90, based on the size of the inverse head and shoulders. This target will also retest its December highs. There is potential thereafter to make a new all-time high.

n Traders place your initial stop loss as a close below R63.

n From R71, tighten your stop for example to a prior two-day low, to protect profits.

Colin Abrams is an independent technical analyst. For more information see www.themarket.co.za.

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