IMPORTANT UPSIDE REVERSALS

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1 Welcome to TheMarket.co.za Weekly Analysis Report Date of Issue: 04 July 2012 By Colin Abrams Contents: Intro and Exec Summary 3. Relative Strength 6. Overall Summary 1.Market Charts 4. Notes & Updates 7. Glossary (in first letter of each month) 2.Small-Cap Chart 5. Shortable Stocks/Indices Classic Trading Rule: When trading well, trade more aggressively and somewhat larger. (We must make our proverbial hay when the sun does shine). IMPORTANT UPSIDE REVERSALS Introduction: Last week was a significant one on the JSE, and on world markets in general. Bellwethers Anglo and Billiton gave classic reversal weeks up and many overseas indices ended June on a very positive note. As per an sent out on Friday to all subscribers, this confirms, in my view, the early-june lows as being the bottom of this multi-month correction we ve had. The general strategy remains on of buying pullbacks, but caution is advised on the more volatile stocks (like resources stocks, that are technically still in downtrends). The ongoing strategy we ve forwarded (for a long time now) of buying findi stocks on pullbacks continues to reap good profits. We start with the Dow chart that shows a higher target still in place after a recent sharp sell-off two weeks ago. The JSE All Share index has reversed up from our buying level, and despite ongoing volatility is likely to make its way higher towards its now wellestablish resistance area. We show a chart of the gold price ($) that is threatening a new upside breakout for buying. On the currency front we look at the EUR/ZAR, which is point to ongoing rand strength in the short-term. The stock charts shown are Bidvest (upside breakout, and now pulling back), Aspen (gearing up for more rallying), and Vodacom (bouncing off support). The small-cap stock is Premium, which has given a very important upside breakout. Overall, while the market remains tricky in the short-term, more and more bullish signs are coming in on local and overseas charts. We ve said for a few months now that the early-june low will be the best buying opportunity of 2012 and I m sticking with that. Executive Summary: Dow (chart 1): Traders buy on a minor (2-3 day) pullback. All Share Inx (chart 2): Hold from recent buy signal off line 4. It can still be bought. Gold ($) (chart 3): Buy on a close above line 3 (i.e. above $1620). EUR/ZAR (chart 4): Buy the rand (short the euro) on a 1-2 day bounce. Bidvest (chart 5): Buy at current levels (R186) on this pullback. Aspen (chart 6): Buy at current levels if not already in. Add to on a new breakout. Vodacom (chart 7): Buy at current levels for a relief rally. Premium (chart 8): Buy some at current levels. If it pulls back towards R15. add to that. Leading Stocks (3-mths): Top Assore, Firstrand, RMBH, Shoprit, InvPlc, MTN, Truwths Resources 10 - Anggold, Gfields, BHPBilliton, Anglo, Exxaro. Shortable stocks/indices: 18 stocks, 0 indexes, 1 commodities, 2 currencies. THIS NEWSLETTER IS TO BE READ ONLY BY THE SUBSCRIBER. COPYING, ELECTRONIC TRANSMISSION ( ), REPRODUCING, AND/OR DISSEMINATING THIS DOCUMENT, OR PART THEREOF, IN ANY OTHER MANNER WITHOUT THE WRITTEN CONSENT OF THEMARKET.CO. ZA IS A VIOLATION OF THE COPYRIGHT LAW - AND IS ILLEGAL.

2 1. MARKET CHARTS DOW JONES Working its way back up Broad Recommendation: BUY PULLBACKS (WITH CAUTION) Trend: Short-term up. Med-term sideways. Long-term sideways to up. Strategy: Traders buy on a minor (2-3 day) pullback. Chart 1. (Daily) 100 Stochastic Oscillator ( ) OVERBOUGHT February 200-DAY MOVING AVE March I-DJ-INDU (12,868.06, 12,946.20, 12,845.28, 12,943.82, ) April May S 3 H June OVERSOLD TARGET July Chart Setup: The Dow has given a very unusual sequence of patterns: and (almost) failed inverse head and shoulders (labelled S-H-S) followed by a failed head and shoulders. The net effect is bullish. (I ve only ever seen this about once or twice before, across all instruments). The original inverse H/Sh through didn t technically fail, as the stop wasn t triggered, although we did advise to exit last week on a rally. This type of volatile trading in both directions makes short-term trading very tricky. But now the market is showing its hand, that it wants to continue higher. The short-term Stochastic Oscillator (on top) is overbought though; so all in all, caution is still advised although the upside is to be favoured. Strategy Details: Buy on a 2-3 day pullback. You can buy at current levels but it is more risky given the rallying in recent days, and the fact that the stochastic is overbought. Target: Up to line 2 at 13 2/0, based on the height of the inverse H/Sh projected up. Stop-loss: Initial stop is a close below When the index nears , use a breaking of its prior one day low as the trailing stop, to protect profits. I expect the index to eventually break above line 2. S ii

3 JSE ALL SHARE INDEX Important upside reversal Broad Recommendation: HOLD/BUY, IF NOT IN Trend: Short-term up, despite recent sell-off. Med-term sideways. Long-term up. Strategy: Hold from recent buy signal off line 4. It can still be bought for a more upside. Chart 2. (Daily) Stochastic Oscillator ( ) OVERBOUGHT OVERSOLD TO FEB February March Mov ing Average ( ), JSE-OVER (336.5, 339.8, 336.7, 339.8, ) April May 200-DAY MOVING AVE June July Chart Setup: After falling through line 4 sharply last Thursday, the index reversed up sharply on Friday forming a classic reversal day/candle at line 4 (which was our buy signal advised here last week). This sets up a rally back towards the top of its five-month broadening formation (lines 1 and 2). Support here is a zone at lines 3 ( ), as well as its rising 200-day moving average. The short-term Stochastic Oscillator (on top) is rising from its oversold region, and is bullish Strategy Details: Hold from last week s buy signal (based on Fridays classic reversal candle up), if you took it. If not in, it can still be bought (on a one or two day pullback) for more upside follow through. Target: Look for a move back to line 2 resistance, at the 34 0 level to take profits. There will be prior resistance at , but the odds favour the index continuing through it up to line 2. A breakout and close above line 2 i.e. above will be a re-entry signal for further upside to medium-term. Stop-loss: Initial stop is a close below 33 0 based on this index. From 34 0 take partial profits and use a breaking of its prior two-day low as the stop. Then narrow it to prior one-day low from iii

4 GOLD ($) Testing important resistance level Broad Recommendation: PREPARE TO BUY Trend: Short-term sideways. Med-term technically down. Long-term sideways to up. Strategy: Buy on a close above line 3 (i.e. above $1620). Chart 3. (Daily) 100 Stochastic Oscillator ( ) OVERBOUGHT M-GOLD-$ (0.00, 1,617., 1,8., 1,617., ) OVERSOLD 5 MINIMIM TARGET Nov ember December February March April May June July Chart Setup: The gold price has been pulling back in recent months in a broadening formation (lines 2 and 3). Yesterday it narrowly broke out above line 3 for the first time. The breakout isn t convincing as yet, so I m looking for a bit more confirmation there. Line 4 forms a small channel with part of line 3. The short-term Stochastic (on top) is moving up from its oversold level, and is therefore bullish. Strategy Details: Buy on a close above $1620 (spot price). (Note, if it closes above that level but well off its high for the day, then wait, as it will be a reversal day down). Target: Once the signal triggers, the minimum upside target will be $1715, based on the height of broadening formation 2-3 projected up. (There will actually be a prior target or $16, based on channel 4-3). Traders lock in partial profits at $16 to reduce your short-term risk. From the $1715 target use a breaking of its prior two-day low as the stop. There is potential to line 5 at $1775 med-term. Stop-loss: Initial stop is a close below $1575 (give it room to move). From $16 take partial profits and raise your stop to below $10. Take more profits at the $1715 target, and use a breaking of its prior two day low from there on the remainder of the position. iv

5 EUR/ZAR Rand to go stronger Broad Recommendation: GO LONG (BUY) THE RAND ON BOUNCES Trend: Short-term rand strength. Med and long-term sideways. Strategy: Buy the rand (short the euro) on a 1-2 day bounce. Chart 4. (Daily) 5 NEG DIVERGENCE MACD ( ) C-EUR-ZAR (1,018., 1,018., 1,018., 1,018., ) MINIMUM TARGET mber February March April May June July 9 16 Chart Setup: The EUR/ZAR has broken down from a rising wedge (lines 1 and 2). (Rising wedges do typically break to the downside). It has now also broken below line 3 of a wedge/channel (with line 4). There is a lower target for the euro in place (stronger for the rand). The MACD (on top) did give a large negative divergence (see Glossary) from its overbought level warning of a reversal in trend here (towards rand strength). The MACD is now also crossing below its zero line, which is further bullish for the rand. Strategy Details: Go long (buy the rand) on minor bounces (i.e. 1-2 day bounces). Note, it is bouncing today so far, but I d like to see a bit more of a bounce before going long the rand because it s moved a lot over the past week. Target: Minimum target is based on the large wedge projected down. Take partial profits there. Take more profits at From there, lower your stop to a breaking of its prior one-day high. There is potential to retest the March low of 9.88 over the coming months. Stop-loss: Initial stop when buy the rand on a bounce, is a close above 10.. Once it gets to lower that stop to a breaking of its prior two-day high, then prior one-day high from v

6 BIDVEST (BVT) Bullish breakout Broad Recommendation: BUY Trend: Short-term up. Med-term sideways to up. Long-term up. Strategy: Buy at current levels (R186) on this pullback. Chart 5. (Daily) Stochastic Oscillator ( ) BIDVEST (182.4, 188.5, 181.2, 188.5, ) OVERBOUGHT OVERSOLD MINIMUM TARGET DAY MA TO SEP February March April May June July Chart Setup: Updating this chart shown here a couple of weeks back. Yesterday it gave a clear break out of a large symmetrical triangle (lines 2 and 3). This activates the higher upside target. The short-term Stochastic (on to) still has upside before becoming overbought in the short-term, and is therefore still bullish. Strategy Details: Yesterday s breakout day was large, and today so far it is giving a nice pullback to retest its breakout level. Therefore, buy it at current levels (R186) on this pullback. Target: Minimum upside target is R196. measured as the height of the triangle projected up. This is a short/med-term trade. Stop-loss: Initial stop is a close below line 1 support. (Line 1 is at R1. on Weds 4 th and its rising at an angle of 25c per day thereafter). As the price nears its target e.g. gets to R195, use a breaking of its prior one-day low as the stop, to protect your profits. vi

7 ASPEN (APN) Consolidating before a breakout Broad Recommendation: BUY/HOLD IF ALREADY IN Trend: Up, on all main timeframes. Strategy: Buy at current levels if not already in. Add to on a new breakout. Chart 6. (Daily) March S -DAY MOVING AVE April May Stochastic Oscillator ( ) ASPEN (123.0, 124.3, 122.4, , ) "FAILED" H 1 OVERBOUGHT June OVERSOLD S FIRST TARGET July Chat Setup: The most bullish thing about this chart is a large potential failed head and shoulders pattern (as labelled). This is a very bullish pattern and one of my favourites. In the very short-term, it has formed a small sideways channel (lines 2 and 3). It looks to be consolidating before an upside breakout. The short-term Stochastic is neutral, but trending up. The weekly Stochastic (not shown) still has good upside potential. Strategy Details: Buy at current levels if not already in (from a buy signal in the Notes & Updates section some weeks back). More can be added on a close above line 3 (R125.95). Target: A close above line 3 (R125.95) will set up an initial target to R Take half short-term profits there and continue with a breaking of its prior one-day low as the trailing stop on the remainder. Med-term there is still a target to R135-R139. It s best for med-term players to simply hold to there. Stop-loss: Initial (and current) stop is a close below line 2 (R121) for traders. The trailing stop from the first target is as mentioned above. vii

8 VODACOM (VOD) Bouncing off support level Broad Recommendation: TRADERS BUY (WITH CAUTION) Trend: Short and med-term down, but oversold. Long-term up. Strategy: Buy at current levels for a relief rally. Chart 7. (Daily) OVERBOUGHT Relative Strength Index ( ) OVERSOLD POS DIVERGENCE TO SEP 2011 VODACOM (93.50, 95., 93.50, 95., ) DAY MA ecember February March April May June July 9 16 Chart Setup: After having fallen sharply for the past two months, Vodacom has found support at line 1 (R92). (Note, line 1 is a good example of old resistance becoming new support). It's had two solid green candles/bars over the past two days, breaking line 2 resistance in the process. The daily RSI (on top) is giving a large positive divergence, which is warning of a rally to come. Strategy Details: While I generally don t like buying stocks that are in a downtrend, this one I believe is worth taking. I m looking for relief rally here from a very oversold level. Traders buy at current levels. Note, if desired, wait for a close above line 3 as an added confirmation (but I don't think it s necessary in this case). (Line 3 is at R96.10 on Weds 4 th and its declining at an angle of c per day thereafter). Target: While there is a chance of it rallying back to retest its April high of R I m doubtful of it going that far. Take trading profits in thirds. The first third at R101.20, the next third at R103., and leave the final third on with a trailing stop, such as a breaking of its prior one-day low. Take all trading profits at R107 if reached. (Note, refer to this month s Big Picture newsletter for why the longer-term outlook here does not look too good). Stop-loss: Initial stop is a close below R Once it gets to R101, raise your stop to a close below R96, and follow the strategy as discussed above. viii

9 2. SMALL-CAP. CHART PREMIUM (PMM) Important new breakout Broad Recommendation: BUY Trend: Short-term up. Med and long-term sideways. Strategy: Buy some at current levels. If it pulls back towards R15. add to that position (buy more). Chart 8. (Weekly) Relative Strength Index ( ) PREMIUM ( , , , , ) OVERBOUGHT OVERSOLD MINIMUM TARGET WEEK MA Nov Dec 2009 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Se Sector: Real Estate. Price: R16.10 Chart Setup: After consolidating for the past two years in a declining channel (lines 1 and 2), Premium broke out to the upside last week. This is a bullish event. It also broke out of a triangle (lines 3 and 4) in the process. The weekly RS I (on top) still has more upside over the med-term. Shorter-term oscillators are overbought though. Strategy Details: Buy some now. If it happens to pullback to R15.-R15. then buy more. This is med-term+ trade. Target: Minimum upside target is R19.. Further potential longer-term is to R22. Stop-loss: Initial stop is a weekly close below R14.75 (line 3) Other small-caps of interest (alphabetically): (shares to consider on a pullback) - Long: Itltile, Trnpaco, Trustco. ix

10 3. RELATIVE STRENGTH These are the strongest index stocks on a 3-month basis relative to the JSE All Share Index. Typically the leading stocks keep leading. Therefore, traders can buy these stocks on pullbacks, although always look at the chart first before making a decision. Medium and longer-term players should look to buy them when they first appear on this list. We've also included the weakest index stocks. These can either be shorted on bounces (if in a downtrend), or traded as a "pairs trade" against the strongest stocks i.e. go long a strong stock, and sell short a weak stock at the same time. Strongest seven Top stocks: Assore, Firstrand, RMBH, Shoprit, InvPlc, MTN, Truwths. Weakest seven Top stocks: Lonmin, Amplats, Implats, Steinhof, Vodacom, Absa, Tigbrands. Strongest five Resi 10 stocks: Anggold, Gfields, BHPBilliton, Anglo, Exxaro. Resi 20 vs. Findi over 3-months: Findi stronger. 4. NOTES & UPDATES: - Concerning last newsletter s index stock charts: - Shoprit: on Monday it pulled back to our buying level at 148 (line 3 in last week s report). Yesterday it also gave the upside breakout. Keep holing. Minimum target is Take partial trading profits from there and use a breaking of its prior one day low as the trailing stop from there. I would expect it to comfortably exceed that target level over the short/med-term. - Imperial: this trade has done incredibly, reaching and exceeding the 183 minimum target today. Take partial trading profits as advised and continue with a breaking of its prior one day low as a trailing stop to allow for further upside. - Lonmin: is still trading inside the triangle shown last week. Enter in the eventual breakout direction i.e. a close above 101. now to go long, or a close below to sell short. Do whichever happens first. Look for a R10 move per share in the breakout direction. Other recommendations and index stocks of interest (alphabetical order): Important Notice: When buying after a pullback or selling short after a bounce, always look for a sign of a reversal e.g. reversal day or reversal candle before entering (otherwise one is simply picking a top/bottom, which does not work). A reversal day/candle at the top is typically when the price rallies that day but then sells off to close near the bottom of the day s range. Conversely, a reversal day/candle at the bottom is when the price initially drops that day, but then rallies back to close near the top of the day s range. Waiting for the reversal day will put the odds back in your favour. (I usually like to see the high/low of the reversal day taken out the next day before finally entering i.e. the entry trigger ). - Regarding taking profits, I suggest locking in profits in thirds as the price moves in your favour i.e. 1/3 of your position, then another third then the final third. High probability trades (or charts), other than Charts 5, 6, and 7, that I particularly like (long or short) at the moment (in no particular order. See comments below): - Remgro, Firstrand, Woolies. x

11 - Abil: it s retested its recent lows for a buying opportunity as advised last week. Keep your stop as a close below 35.. Target 38.. Do not take a large position here. - Absa: got within a few cents of its 134 target last week. As mentioned it s going to take a long time to regain its former highs. It can still drop to I don't think it s worth shorting at current levels though, or on a bounce because it s very oversold, I don't see any reason to be buying it either. - Amplats: continues to languish. Reversal attempt up last Friday proved to be quarter-end window dressing as it continued falling thereafter. As mentioned, it s risky to buy a stock in a downtrend. It is very oversold now, but unless this a technical reason to buy it, it should be avoided still. I would not short it on a bounces now either as its too oversold. - Anggold: has continued drifting down. A close above 283. will lead to a further bounce but one has to start all over again here and I d like to see more bullish action coming through before buying it again. A reversal day down from 283 will be a short signal but with great caution because its already oversold. Stop a close above Target to Anglo: as per an sent out to all subscribers on Friday, it s given a reversal week up last week which confirmed the early-june low as being the bottom (as we ve said in recent weeks). A close above 275 will be a new buy signal, although still aggressive, because the trend is technically still down. Stop a close below Minimum short-term target then is 286 for taking some profit. Use a breaking of its prior one day low from there for short-term traders. If it can close above 286 for one or two days, it will setup a further upside target to 310. No large positions advised at this stage. - ARM: a sharp move down triggered the mentioned stop. It bounced back a bit since then. While I do think its bottomed now there's no technical reason to be buying it as yet. Rather focus on buying stocks that are in uptrends. - Aspen: see Chart 6. - Assore: after a good profit taking on the prior long trade, its continued drifting down triggering a new long s stop that was mentioned last week. It is oversold now in the short-term and may well be heading for another rally soon. There's no clear entry point as yet. If it drops to 277 and gives a clear reversal day up then it will be worth buying again. Target Stop a close below that reversal days low. - Barworld: keep holding. It s still moving sideways in the short-term. A close above be a new buy signal (with caution because its trend is technically down) and point to a minimum target of 88.. Stop is a still a close below BATS: a good profit was locked in here as it reached our upside targets and triggered the trailing stop take profits. There s no clear further target here for now, but pullbacks are buyable because it s in such a strong uptrend. Support for a pullback is 316, with main support at 4. Personally I d wait to see if it gives a decent pullback to that 4 level before re-entering. - BHPBilliton: as per the update sent out to subscribers on Friday, it gave a nice bullish reversal week last week confirming the early June low as being the bottom. It has rallied quite well in recent days and I m expecting it to continue up to It can therefore still be bought at current levels although I prefer to buy on a minor pullback e.g A breakout and close above 245. (that does not close near the low of that day, because then it will be a reversal day/candle down) will trigger a new med-term buy signal, for an eventual rally to 275. The initial stop-loss then will be below 2, which we ll look to raise as the uptrend gathers momentum. For now, short-term traders if in, tighten stops when it gets to 244 in case it doesn t give that important upside breakout just yet. - Bidvest: see Chart 5. - Clicks: med-term target to 64.. Buy on a pullback to for that. Stop a close below Discovery: pulled back exactly to our mentioned buying level last week a has relied from there nicely, reaching the 54 target today. It is overbought so short-term traders to be taking profits xi

12 and then wait for further pullbacks to buy on e.g. a pullback to 51.. Stop a close below 51.. Target Exxaro: its moved sideways over the past week. There's no clear trade here. I would therefore advise exiting for traders if in, and awaiting further instructions. - Firstrand: on Monday it reversed up from our 26. support level. It is oversold as well. Buy it, but with caution, because the bigger time frames here are very overbought. It's buyable closer to 27 or lower, with caution. Stop is a close below Upside target to My only concern right now is it might be forming a head and shoulders on the daily chart. But if not, then that target should be reached. Therefore no large positions advised at these levels. - Gfields: it continued drifting down, and has some support at 101. It's very oversold but there's no reason to be buying as yet. Technically bounces are shortable e.g. a bounce to and reversal day down from there. Stop above the reversal days high, or a close above 109 if preferred. It needs to close above 109 to trigger a new buy signal. For now it s still vulnerable to a drop to Harmony: has continued drifting down and is very oversold. Nevertheless, a drop to its may lows around 72 is still possible. Technically a reversal day down from will be a short signal for that. Stop a close above 81.. It needs to close above 81. to trigger a new buy (long) signal. - Imperial: see update above. - Implats: its drifted down and is now retesting its early June low around 129. This may well be the low setting up, but it may not. Therefore unless you re a pure bottom picker (which I would never advise one to be, ever) continue to avoid it for now. - InvPlc: it reversed up from a few cents above our mentioned 246. buying level and has reached the trading target today. There is a lot of resistance at this level which is currently being tested. Two consecutive closes above (that do not close near their day s low, because then it will be a reversal day/candle down) will be a med-term buy signal. Eventual target then 58.. Refer to this months The Big Picture for a long-term view of it, which is starting to look more positive. - Kumba-IO: a reversal up from the 5 support level mentioned here last week is seeing it rallying again. It is extremely volatile. The general strategy though is to be buying the pullbacks, but be aware that pullbacks in this stock can be sharp. It's currently oversold and looks to be building up for a retest of its recent 599. high, as I ve been expecting. A close above 563 will be a buy signal (as long as it doesn t close near that entry days low). Target to 599. Stop a close below 5. From 5 narrow a stop to a breaking of its prior one day low. - Lonmin: see update above. - Massmart: its taking its time and is a slow grind, but it s still a hold as a med-term buy. I think it has good upside potential here over the med-term. A close above 173 will take it up to 189. From there well reassess but it has potential to 198 (all med-term). Current stop a close below 1. for the med-term. - MrPrice: what can one say? New all time highs being made here on almost a daily basis. As we ve said now for many years The best strategy remains to simply hold for the med-term+. The short-term trailing stop given last week has still not been triggered and the price has moved over 120 today. Tighten short-term stop to prior one day low. Target to 129. now. Pullbacks remain buyable for short-term traders. Med-term+ hold. - MTN-Group: gave a pullback to our buying level last week and is back up reaching the target yesterday and today. Main resistance level here is 147 that it needs to eventually breakout above to rally get going again. The general strategy though favours buying on pullbacks for now. - Naspers-N: its continued moving down to retest its May low (R434). That an important level here. A close below there will see it drops to 0-0. It's still a hold for now though. More aggressive traders can buy at current levels, with your stop a close below 434. Take trading xii

13 profits at 461 (raise stop to prior 2 day low from there) and 475 if reached. Refer to this month s Big Picture for a longer-enter outlook here. - Nedbank: pulled back sharply on the Absa news to trigger the stop but as mentioned last week it was within toughing distance of our 181 med-term target (and when it s that close to always take at least some, if not all profits. This is something I ve been saying here for many years). It's back up at the moment and can be cautiously bought buy traders, ideally on a 1-2 day pullback for a move to Stop a close below Med-term stop is a close below Netcare: pullbacks are buying on an ongoing basis for the med-term. Med-term target is Newgold: it s still in a short-term consolidation phase. It triggered the mentioned breakout level last week to buy but has pulled back since. It's still a hold in my opinion. But give it a bit more space so place your stop as a close below 126. If not in, buy on a close above 132. Take half profits at 136. But best strategy is still to hold for the med-term to a target of It s the kind of instrument that moves quickly when its ready. - Old Mutual: its oversold in the short-term. The question though is whether the recent upside breakout will turn out to be a false breakout. For now hold, with your short-terms stop a close below 19.. If not in, buy on a close below 19.85, with the same stop. Med-term target is still Reinet: reached the 15. profit target on Monday. Med-term it can still continue up to above 16, so pullbacks are buyable for traders. - Remgro: has got to the short-term profit taking level mentioned last week of It also pulled back to our mentioned buy level a few times in recent days, resulting in a nice quick profit. This chart looks interesting though and may well be building up for an important upside breakout. A close above 137. will be a new buy signal, for a rally to the target we ve had here for some time. It remains a med-term hold nevertheless. - Richemont: did indeed drop to the 43. level before bouncing back at the moment. It needs to close above 46. to trigger a new buy signal. Target then will be.20, and stop a close below RMBH: after a recent pullback it looks to be heading back up. My only concern here is a potential short-term head and shoulders forming. It needs to close below 34 to confirm that pattern. For now, buy/re-enter on a one or two day pullback. Stop is a close below 34. and target to 38. No large positions advised at this levels, because it s had a massive rally in since January and good profits have been made here consistently for subscribers on the way up. - SABMiller: its testing that critical 331/332 level mentioned last week. It needs to close above on a weekly closing price to trigger a buy signal for more upside to 355 over the medterm. I think it s just a matter of time till it happens. For now a pullback to 325 is a buying opportunity. Stop a close below 323. for traders. - Sanlam: has reached the 36 target and is now pointing to a target of short-term. It remains a sold performer and is to be bought on minor pullbacks. The stop is a close below 35.. Is still buyable below 36 but with caution and no large positions advised at these levels. - Sasol: it got to the mentioned downside target, and is overbought on the short and med-term time frames. There s no new signal to go long though as yet,. In fact the strategy remains one of shorting the rallies for the time being e.g. a rally to 357, but with great caution, take profits after 3-4 days of falling thereafter. Stop ave the reversal days high. It is a difficult stock to trade at the moment so as mentioned last week, there are far better opportunities for traders (don't make like unnecessarily difficult for yourself). - Shoprit: see update above. - Stanbank: after reaching our profit target on the prior trade, the re-entry trade was stopped out due to a sharp drop after the Absa news. It's bouncing again, and is oversold in the short-term. It's worth buying on a pullback to 111, with your stop a close below Target to xiii

14 - Steinhof: it continued moving down with no buying signal as yet. It is a short on bounces e.g. to but no large positions advised because its oversold. Stop a above Target is 24 and 23. to take profits at/near each level. - Tigbrands: it s still in consolidation mode and likely to retest 239 again. But if it closes above then buy it. I do think we re seeing a med-term buying opportunity lining up here. Stop then will be a close below 2 and target to 2. For now though, it remains in a short-term downtrend. A reversal day down from the 251 level is in fact a short signal for a drop to Stop a close above Vodacom: see Chart 7. - Woolies: continue to hold as its giving a new upside breakout today so far. A close above will be a new buying signal (or add to signal for those already in i.e. traders). Target then to 52. initially to take partial trading profits. Further target is still 55. Stop right now is a close below 49.. It remains an ongoing med-term hold as well. GOLD UPDATE: The JSE gold index has continued drifting lower. Moving below the support level mentioned last week. Yesterday there was a reversal candle up there, but we need a lot more than that to buy when it s in a downtrend. My concern here is that it may retest its May lows around 21. For now it s best to avoid gold shares until some clear buying signal come in. An aggressive buy signal will be a close above 23, for a rally to 24. Keep a tight stop as a breaking of its prior one day low on this index for gold stocks. Right now it needs to breakout and close above 24 to trigger a regular (nonaggressive) long signal. Dollar gold price: see Chart 3 for detailed commentary. Rand gold price: It needs to close above 13 0 to get going again. Med-term target is still It s still in a consolidating phase in the short-term. Support is 12 9, then The best strategy here is still to hold for the med-term (but one needs to be patient). 5. SHORTABLE STOCKS AND INDICES Please note: We list the stocks and indices (local and overseas) that are in short-term (at least) downtrends, and that can be sold short (see Glossary for definition) on rallies to resistance. Selling short can be done via single stock futures, CFDs, spread trading, and/or put warrants. One way of trading these stocks/indices is to sell short rallies to the falling 20-day moving average (in stronger downtrends) or the falling -day moving average (in more gradual downtrends). These moving averages tend to act as resistance. Wait for a downward reversal at the moving averages before selling short. NOTE 1: ALWAYS USE PROTECTIVE STOPS ON ALL POSITIONS. Selling short is for shortterm traders only, and all positions must be monitored closely. NOTE 2: The instruments on this list are not automatic shorts, but it is a starting point for looking. Always look at the chart first before making a final decision. Shortable Stocks: (as of 04 July 12) Price (R) 20-Day MA: -Day MA: ABSA AFROX ALTECH ALTRON ASTRAL xiv

15 AVENG BARWORLD GRINDROD HULAMIN LEWIS LONMIN NORTHAM PPC RICHEMONT SASOL STEINHOF TELKOM TIGBRANDS Currencies/Commodities: Price 20-Day MA: -Day MA: M-SILVER$ C-EUR-ZAR C-GBP-ZAR OVERALL SUMMARY Despite a volatile market locally and overseas, the underlying bias is bullish. World markets are very news-based at the moment, particularly around the European crisis. In fact, the market appears to be living from news event (meeting) to news event. But the underlying bias of prices is bullish, despite what the fundamentals might (or might not) be saying. Last week was significant, as some important instruments reversed sharply higher. Moreover, June was a bullish reversal month on the major indices. I m therefore looking for the market bottoms that occurred in early-june to continue working themselves higher (albeit it in a volatile fashion). However some of the large-cap industrial stocks, for example, are simply champing at the bit to get going (e.g. Remgro, Bidvest). Bottom, line one should continue to focus on the long side, but with caution, particularly in the stocks that are not yet in confirmed uptrends, such a large cap resources stocks. Sincerely, Colin Abrams TheMarket.co.za PS: Remember: Protective stops on all positions! NEXT COURSE DATES: JOHANNESBURG xv

16 Course 3: Developing Trader Discipline (Trading Psychology) - 27 July 2012 (Friday). Come learn why the trading psychology books you ve read so far will not help you. We will show you the only think that works in this field (based on the very latest neuro research). DURBAN Course 1: Technical Analysis - 19 August 2012 (Sunday) Please us if you d like to attend. GLOSSARY OF TERMS USED IN TheMarket.co.za NEWSLETTER: Bearish/Bullish Engulfing Pattern: A candlestick whose entire body engulfs the body of the prior candlestick. Is bearish if found after a rally; or bullish if found after a drop. Bottoming tail: A price candle where the price falls sharply from the open, but then recovers to rally strongly into the close. A bullish sign. (Japanese) Candlesticks: Price bars (called candles ) which accentuate the open-close relationship. Is an alternative to the Western bar-chart. CFDs: (Contract-for-difference) is a leveraged instrument, like a futures contract except there is no expiry date, and one trades the underlying itself, not a derivative of it. Closing price (or the 'close'): the last price of the specific time period chart e.g. last price of the day for a daily chart. If trading on the close, either execute your trade just before 5pm (if the specific signal is triggering), or first thing the next morning. Countertrend: 'going' (trading) counter to the main trend. E.g. if the main trend is up, then a countertrend trade will be to sell short. (Note it is always risky to take a countertrend trade, and generally not recommended. Remember, 'the trend is your friend'). Doji candle: A price bar (candle) where the opening price is equal to the closing price. Denotes indecision. Typically precedes a trend change. Double top: Refers to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise all occurring after a significant rally. Bearish. Elliot Wave Theory: Each trend is made up of five waves in the direction of the main trend. (It can be further subdivided into the same sequence of waves on a smaller time frame). Fibonacci retracement level: A point where prices typically find resistance/support when retracing a prior move - the most significant is 61.8% (others are 38.2%, %, 78.6%). Fibonacci extensions: Using Fibonacci numbers (e.g. 61.8%, 161.8%, 261.8%) to project future price targets (or reversal areas) based on the length of prior price swings in a particular stock Gravestone Doji: A candlestick that rallies sharply after the open, but then reverses down and closes at same level as the open (which is at the low of the bar). Looks like a gravestone. Bearish. Head-and-Shoulders price target: the minimum target is the height of the pattern to the neckline projected downwards from the breakdown point. Long position: Opposite of selling short i.e. buying because one expects the price to rise MACD: stands for Moving Average Convergence/Divergence. Is the difference between a 12-day and 26-day exponential moving average, plotted as a single line. Shows price extremes. Negative Divergence: Is typically a bearish sign occurring when an indicator (e.g. RSI) fails to make a high, but the price itself does i.e. setting up a divergence between the indicator and the price. Overbought: an area on an oscillator that typically indicates when more buying than selling (which has pushed prices up) is reaching an extreme level. A fall or correction is then due. Oversold: an area on an oscillator which typically indicates when more selling than buying (which has forced prices down) is reaching an extreme level. A rally is then due. xvi

17 Pivot high: A high, with a lower high on either side of it. Pivot low: A low, with a higher low on either side of it. Positive Divergence: Occurs when the price makes a new low, but the indicator does not i.e. setting up a divergence between the price and the indicator. Bullish. Relative Strength (or Ratio ) Analysis: comparing one market or stock to another to see which is outperforming on a relative basis. Not to be confused with Relative Strength Index (RSI). Resistance: A level above the market where selling is greater than buying (i.e. supply). Reversal Bar (Day): Occurs when the price makes a new low relative to the previous price bar s low, but then reverses and rallies to close above the previous bar s close (bullish). And vice verse for a bearish reversal day. It typically signals a change in trend. Note, the larger the range of the reversal day, the better. Reversal candlestick: Typically bullish when the price opens low, then weakens, but rallies strongly into the close, to close near the day's high e.g. hammer, bullish engulfing pattern, piercing pattern. Vice versa for bearish signals e.g. shooting star, bearish engulfing pattern, dark cloud cover. Note, the larger the range of the reversal candle, the better. Risk-Reward ratio (good): A trade where the potential profit is at least 3x the potential loss. Selling short (or shorting ): Expecting prices to drop, so selling first and buying-back later. Short position: A trade where one has sold short (as above) Shooting Star (candlestick) A candle that suggests a minor (at least) reversal. The body of the candle is near the low, and the line has a long upper tail. Spot Price: the price of the underlying instrument itself i.e. not the futures price. Support: A level below the market where buying is greater than selling (i.e. demand). SSF's: Single Stock Futures. Stop-loss: point where you close the trade if it moves against you - to protect yourself. Time frames: (approximately) Short-term: 0-6 weeks; Medium-term: 2-5 months; Long-term: 1yr + (for purposes of TheMarket.co.za analysis report). For The Big Picture newsletter, long-term is defined as 2-5 years. Trailing stop-loss (or trailing a stop ): moving the stop in the direction of the market to lock-in profit e.g. a breaking of prior day s high/low, or a percentage retracement of the current move (e.g. %), or the breaking of a moving average e.g. 10-day MA for the short-term, or -day MA for medium-term. Weekly close: the closing price on Friday afternoon. COPYRIGHT: THIS NEWSLETTER IS TO BE READ ONLY BY THE PERSON WHO HAS PAID AND SUBSCRIBED TO IT (I.E. THE SUBSCRIBER). UNDER NO CIRCUMSTANCES IS IT TO BE SHOWN (OR GIVEN) IN PHYSICAL OR ELECTRONIC FORM TO ANY OTHER PERSON, WITHOUT THE PRIOR CONSENT OF THEMARKET.CO.ZA. ANY PERSON FOUND TO BE DISTRIBUTING THIS DOCUMENT TO A NON- SUBSCRIBER, OR SHARING OF USERNAME OR PASSWORD, WILL HAVE HIS/HER SUBSCRIPTION CANCELLED WITH IMMEDIATE EFFECT WITHOUT A REFUND. (A HUGE AMOUNT OF WORK GOES INTO EACH ISSUE OF THE NEWSLETTER AND TO SHOW IT TO A NON SUBSCRIBER IS NOT ONLY MORALLY INCORRECT, IT IS ALSO ILLEGAL). FURTHERMORE, ELECTRONIC TRANSMISSION ( ), REPRODUCING, AND/OR DISSEMINATING THIS DOCUMENT (OR PART THEREOF) IN ANY OTHER MANNER WITHOUT THE WRITTEN CONSENT OF THEMARKET.CO.ZA IS A VIOLATION OF THE COPYRIGHT LAW - AND IS ILLEGAL. LEGAL ACTION WILL BE TAKEN AGAINST PERPETRATORS DISCLAIMER: xvii

18 The information contained in this analysis and/or report is not to be construed as advice in terms of the Financial Advisory and Intermediary Services Act of 2002, and is given for information purposes only. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services. Information for stock and index observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock/index/commodity/or currency observations, and opinions are entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. The information provided here is for interest and educational purposes only, and does not constitute advice. The editor and publisher of TheMarket.co.za newsletter will not be held responsible for losses incurred as a result the opinions expressed herein. All information herein is based on opinion; markets follow their own course. You must assess the risk of any trade and make your own independent decisions regarding any securities mentioned herein (or options thereon). We will from time to time have a position in the securities described herein. One should always use protective stops on all trading and investment positions. There is a risk of monetary loss in trading and/or investing on the financial markets. Charts created in Metastock. (Contact us for buying Metastock at the lowest rate in SA). Copyright, TheMarket.co.za. All rights reserved Tel: Fax: info@themarket.co.za xviii