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Truworths has formed a bullish price reversal off horizontal support at 9740. The price reversal is supported by the Stochastic crossing out of oversold territory. These indications favour a range trading opportunity with the initial resistance target considered at 11040. Should the share price instead move to close below horizontal support at 9740, the bullish indications would be deemed to have failed.
The share price of Billiton looks to be reversing the short to medium term downtrend previously in place. The break of the downward trend line and the double bottom price pattern (blue “W” on chart) are evidence of this. The share is however also in overbought territory according to the Stochastic indicator. With the aforementioned indications in mind, we are hoping for a pullback from overbought territory towards the 24270 level for long entry. In this scenario we are looking for renewed gains targeting the 26245 resistance level. Should the price instead move to close below gap support at 23670, the bullish indications would be deemed to have failed.
The chart considered is that of Foschini (candlestick) with a Relative Strength Comparison (RSC) indicator added. The RSC (blue line) compares the price of one security with that of another in a ratio format. The RSC has experienced a decline in value recently which highlights that security 1 (Foschini) has been underperforming security 2 (Woolworths). Bollinger Bands have been added to the RSC and highlight the underperformance of security 1 reaching abnormality relative to the usual relationship of the two securities. It is expected that the relationship between the two securities will revert back to normality favouring a possible pair trade opportunity i.e. Long Foschini Short Woolworths. The target from the technical indications would be for the RSC to move back towards the 20MA (red line) which is regarded as the mean. This could occur with the price movements of the securities in a number of ways;
Should one of these scenarios play out successfully the expectation would be for a net gain of 8.7%. A stop-loss would be considered equal to the anticipated gain of 8.7%.