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BHP Billiton: technical set-up

The South Africa 40 index confirmed last week’s bearish engulfing pattern and the price subsequently corrected below our initial support level at 38,000.

All trading involves risk. Losses can exceed deposits.

These type of patterns are understood to represent a brief pause in the preceding trend before a continuation.

In this context the preceding trend was up, and the price of BHP Billiton (SA) is currently breaking out while possibly beginning the continuation.

The piercing pattern shows the short-term downward move has ended, and indicates the potential for a price reversal. We also observe that the price has found support at the gap level.

 Current price  30,500c
 Initial target (recent high)  31,400c
 Ultimate target (flag target)
 32,600c
 Failure level (below gap support)
 28,900c
 Stop-loss distance 
 1600c (current price – failure level)
 Initial reward  900c (initial target – current price)
 Ultimate reward  2100c (ultimate target – current price)
 Initial Risk/Reward ratio
 1: 0.56
 Ultimate Risk/Reward ratio
 1: 1.3

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