Markets bounced at the end of last week and for the first time since January, we may be set for a positive week on the Australian market. Much of that, of course, depends on continued commentary by the RBA because last month’s talk of multiple rate rises took traders by surprise. It does seem as though the overwhelming consensus is now for many rises and an inevitable recession.
This means that we have to be open to the consensus of getting it wrong. We may know more in the next few days whether markets have become too negative on the outlook.
Despite a soft day yesterday for resource stocks, they still appear to be the sector with the best opportunities. The chart below is on South32 ((S32)).
The price action for S32 is looking very bullish on a weekly chart. We last looked at the chart in early November and noted that it should break higher and get moving again. After that, it formed a very clear line of resistance near $4.35 (horizontal blue line). It broke higher again in early January before coming back to retest that blue line.
Last week we saw S32 test that old resistance line (now support), and rally strongly to form a bullish engulfing pattern on the weekly chart (circled). This price action, as the name suggests, is very bullish. There is a high chance that S32 continues to trend higher from here.
We may see a few days of sideways movement as it tests the January high. A break above the January high would present the next buying opportunity and that means we would then be targeting the 2022 highs for the next line of resistance.
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