More Downside For Rio

This story features RIO TINTO LIMITED. For more info SHARE ANALYSIS: RIO

Bottom Line 15/05/13

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Neutral

Technical Discussion

One of our focal points last time was on some bullish divergence which if triggered portended to higher prices, albeit within a bounce as opposed to a strong leg north.  The divergence did indeed trigger and as can be seen Rio Tinto ((RIO)) has shown some resilience since our last review.  Having said that, the past few sessions certainly haven’t been bullish with today’s decline suggesting that our wanted push down to support is still on the cards.  Today’s sell-off appears to have come on the back of tax implications in the budget as well as weak commodity prices overnight.  However, as usual we don’t want to focus on the fundamentals too much as there are many opinions out there for all to see.  The chart tells the story which isn’t indicating a happy ending right here and now.  In regard to our wave count nothing changes over the larger time frame which is where we still have to focus on.  The patterns from the high of wave-(X) are difficult to decipher to say the least meaning in this instance I think it’s best to stick to a more conventional pattern analysis.  One interesting pattern is the small 3-leg move up that commenced in April which in its own right is a minor degree a-b-c set-up.  Overlap has been achieved today meaning price is in a position to head down pretty much immediately.  There is a chance that price meanders in this general region for a while longer though the ideal situation is to head down and retest the $51.00 region.  Let’s see if today’s weakness follows through.

It could be argued that a complex Head & Shoulders pattern has been forming over the past couple of months or so though importantly it has yet to trigger.   Today’s low could theoretically complete the second R/S though there’s no more room for weakness here on in.  We’ll take a closer look during tonight’s video though I have to say, looking at the weakness of the sector I’m not overly convinced the pattern is going to trigger.  And that’s the important thing to remember here; it’s a pattern only and we’d need to see the recent pivot high overcome before getting too enthusiastic in regard to another leg higher.  A probe beneath the prior pivot low at $53.83 definitely invalidates the H&S and brings our ultimate target at the minor line of support ever closer.  Taking a look at the volume over recent times also suggests that buying demand is weak.  Notice how volume increases just as the prior pivot high is made which suggests it’s only been nimble swing traders who have been riding the short leg at higher.  There’s definitely no indication that the smart money has been taking an interest which is something that needs to transpire if the stock is to embark on a more substantial leg north.

Trading Strategy

“…I don’t think we’re at the extremes of pessimism right here and now though some capitulation down to the minor line of support in a few weeks time could do the trick…”   Nothing changes in that regard with today’s turnaround in the broader market, and especially weakness within the mining sector offering scope for further declines and even deeper pessimism.  So at this stage of proceedings there is no reason to want to be involved although a low volume probe back down to support would gain our interest and be ideal in regard to a trading opportunity.  There is an aggressive long trade available which comes on the back of the complex H&S pattern mentioned above.  Again, we’ll discuss during tonight’s video.
 

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