Kumba preparing for breakout move

Colin Abrams | Fri, 08 May 2009 12:23

[miningmx.com] -- SASOL is currently the sixth largest stock on the JSE by market capitalisation.

We look at its chart for an upcoming trading opportunity, as well as advice for investors. We also look at a chart of resources stock Kumba Iron Ore, which is preparing for a large breakout move.

The charts show the relevant buying levels for Sasol, as well as where to enter Kumba. However, patience is needed with regard to Kumba to determine the actual direction of its next breakout, which will be significant.

SASOL - BUYING BIAS

Trend: Short term down but oversold. Medium term sideways. Long term down.

Strategy: Buy on either above line 3 or a reversal from the R246,50 level.

* Sasol is currently in a short-term falling channel (lines 2 and 3). Falling channels typically break out to the upside.

* The short-term stochastic oscillator (on top) is giving a positive divergence from its oversold region, which is an early warning of a rally to come.

* Traders buy on either a pullback to R246,50 or lower, or buy on a close above line 3 (R265). Do whichever happens first. (Investors can start accumulating some near line 1 at R242, if reached, but no aggressive buying.)

* Once the price closes above line 3 (R265) look for a minimum target of R297 (ie, the height of channel 2-3 projected up), which will coincide with its declining 200-day moving average.

* If buying on a close above line 3, the stop-loss will be a breaking of the lowest point of the current correction. If buying from the R246,50 level the stop will be a close below line 1 (R242).

KUMBA IRON ORE - MAJOR MOVE COMING

Trend: Short and medium term sideways. Long term down.

Strategy: Either trade inside the triangle or wait for the breakout.

* Kumba Iron Ore is trading in a medium-term symmetrical triangle (lines 1 and 2).

* The stochastic oscillator has reached its oversold level, which is bullish.

* Either trade the boundaries of the triangle - ie, buy off line 1 (R151)/sell short off line 2 (R177) or enter in the direction of the breakout when it occurs by selling short a close below R150 or buying a close above R178. Do whichever happens first.

* If trading inside the triangle take profits as the price nears the opposite boundary. If the price breaks down and closes below line 1 the target will be R120 to the downside. But for a breakout above line 2 the target will be R230.

* For buying off line 1 the stop will be a close below R150. If shorting a reversal down off line 2 the stop will be a close above R178.

* However, if selling short a close below R150 the stop will be a close above R158. And if going long a close above line 2 (R178) the stop will be a close back below R170.

Please note: For more recommendations and charts by the author on shares, stock indices and commodities please go to www.themarket.co.za.