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.
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.