In a previous post we said, "It is not yet time to buy banks." The action of the past 2 weeks confirm this view. The banking index did confirm overhead resistance last week and is pulling back to look for support.
If horizontal support at 38 500 breaks, the index may fall all the way to Fibonacci support at 34 500. This implies a possible 15% decline from current levels. We won't be buying banks just yet.
The JSE Financial Index (which includes the banking index) is giving clear warning signs to investors. Within the black ellipse we see the index trading in a "rising wedge" pattern. This normally is a reliable reversal pattern.
With this in mind, we won't be buying financial shares and will be keeping a close eye on the decision making levels of current holdings. If this index breaks to the downside of the pattern, we expect a 15% drop to 18 500.
Capitec must have been the best performing share on the JSE over the last year. Currently we are witnessing a rare pullback. A potential target for such a correction could be horizontal support at 140. The "risk" involved in buying a share, can be summerized as the difference between the current share price and it's 89-week moving average price. Here we see that moving average at 100. We see Fibonacci support at 120, this is the 38% retracement of the whole upwards leg since April 2009.
One thing is certain, the weekly support level has broken, to signal the end of the bull run. Now we will have to wait and see if the correction does materialize or whether we will only see a sideways consolidation. It is too early to buy and not to late to take profit.
