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For much of 2013, the ATX has been pushing up against very strong resistance in the form of its G1 level at 2504. Indeed, between January and May this year the index probed this level on three separate occasions, creating an important 'triple-top' in the process. In the past week, however, the chart has shown signs that this resistance is wearing thin. Despite it being an early call, there is enough evidence for me to begin covering this index with a buy recommendation.
Adding further strength to the G1 resistance is a tight alignment of three percentages, including one representing a 33.33% rise from the secondary low in July 2012. This alignment defines the band of resistance as 2504-2532. Last Friday's strong advance ran counter to the broad trend of weak European share markets, and by making it the ATX has now closed above the top of the band's parameter. Notably, this development comes after only a shallow pull-back from its recent re-test of 2532, suggesting confidence has now replaced intimidation at having arrived at such a crucial juncture.
As traction gathers pace above 2532, the first stop in this higher trading range will be 2729, being a 7.1% uplift from the last week's closing level. I derived this level by doubling the initial 33.33% rise from the important low in November 2011 to one of 66.66%. Although this becomes a minimal expectation, it is a useful target at which to book first profits.
Recommendation: buy. Target 2729. Stop-losses can be activated on momentum below 2400.