While a sharp rally from early last month has taken the all share index to a record high, the JSE gauge is now testing a multi-month resistance level, and is vulnerable. Price action from here will be crucial.

JSE all share index – Testing resistance.

Recommendation: Traders prepare to sell short.

Trend: Up, but overbought in the short term.


- After rallying over the past month, the all share index has now reached line 2 resistance. Lines 1 and 2 form a large broadening formation.

- The short-term stochastic oscillator (on top) is giving a negative divergence (making a lower high) from an overbought region. This is typically a warning of a correction to come.

- Short-term traders sell short (with caution because the trend is technically still up) on a close below line 3, that is, below 47 550 points. The all share futures will be the vehicle to use for selling short.

- Once triggered, look for a drop to short-term support at line 4 (46 824) to take partial shorting profits. Further profits to be taken at 45 300 if reached. Line 1 support is 43 250.

- The initial stop-loss will be a closing price above 48 180 (equating to 43 580 on the all share future itself). Tighten the stop from line 4 (46 824).

* 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.