Weakness In South32 A Buying Opportunity

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This story features SOUTH32 LIMITED.
For more info SHARE ANALYSIS: S32
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Fairmont Equities' Michael Gable believes the technical set-up for South32 shares is pointing to further upside.

By Michael Gable 

It was another lacklustre week for the Australian share market as the prospect of an interest rate rise today and rising bonds yields in the US have sucked out any enthusiasm for buyers.

US indices have held up very well and at face value the S&P500 Index and the NASDAQ still look quite bullish.

There are a number of mixed signals out there at the moment. We have rising yields weighing on many stocks, and the market breadth in the US is also looking very poor.

That is, despite a few large stocks holding up the S&P500 Index, most stocks have actually been hit quite hard in the past few weeks and are doing fairly poorly.

The question is, do these few mega-cap stocks finally give way and also head lower, or do the beaten-down stocks stage a recovery?

We had this same argument a couple of years ago where everyone was talking about poor market breadth being a risk to the market.

In the end the laggards recovered and helped the index to climb higher.

At this point in time, we would take a bet that history will repeat and that the sold-down stocks will recover and we won’t have a situation where the mega-caps holding up the index fall down.

The VIX is still quite low, which is a positive for markets. Markets also tend to top out on euphoria, and we are seeing a lot of bearishness out there.

We also have to remember that markets have climbed higher with higher yields many times before, as high yields are usually present in a growing economy, which is what we have in the US.

It is just that the rate of increase in yields right now is spooking markets.

It has also caused a rapid rise in the US dollar and this has in turn put pressure on commodity prices.

But we have to avoid the temptation to look at these quick spikes higher and assume that these moves will just continue on at this pace for quite a while longer.

The rate of change we are seeing in yields and currencies is not sustainable and, as we have seen almost every time, there will be a form of mean reversion take place and an inevitable calming down in rates and the US dollar will help with markets and commodities in general.

On the topic of commodities, we still believe that the path for gold, copper, and other metals, is still higher, so what we have seen in the past few days is a counter-trend move lower, but the larger overall uptrend is still in place.

Today, we offer a technical view on South32 ((S32)).

We looked at South32 on 23 June and noted the buying opportunity at the bottom of the range, and then again on 25 August, where it had finally broken higher and then retested the breakout area.

The stock is still holding in at support and this means it should leave the old trading range (between the blue lines) behind and trend higher from here.

South32 remains a buy at current levels. Any short-term dips should ideally be contained to levels above $4.50.

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services. 

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
 

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