Technical analysis: FirstRand appears set up for the downside

BANKING stock FirstRand has rallied in recent weeks, but looks to be setting up for another leg to the downside, to allow traders to capitalise by selling it short. FirstRand – A drop to come? Broad recommendation: Look to sell short. Current Trend: Short-term up, but overbought. Med-term up. (Daily) A current rally in FirstRand off line 1 looks to be temporary, as it fills a large price gap that occurred in late August (as labelled). One should still be focusing on the short side.

Lines 2 and 3 also form a rising wedge, which typically breaks to the down side.

Its short-term Stochastic is overbought and is giving a negative divergence (a lower high, unlike the price), warning of a drop to come.

Sell it short on a close below line 2. (Line 2 is at R47.60 today and it is rising at an angle of 25c per day thereafter).

A close below line 2 will set up a minimum downside target to R44.90, based on the height of the wedge projected down. Take partial profits there. Take more profits closer to line 1 at R44.40.

The stop-loss will be an intraday break of the highest point of the current rally. From R45.10, lower the stop to a breaking of its previous twoday high.