BHP Building For Upside

This story features BHP GROUP LIMITED. For more info SHARE ANALYSIS: BHP

Bottom Line 11/09/13

Daily Trend: Flat
Weekly Trend: Up
Monthly Trend: Up

Technical Discussion

We took a look at the weekly time frame last month to ascertain what the larger degree patterns were offering with the dailies lacking clarity.  However, this evening I’m going to move back to the daily chart as the fog is starting to lift with a slightly clearer picture showing itself.  One thing we do have is an impulsive movement up to the mid-August high which can only be viewed in a positive light.  BHP Billiton ((BHP)) has a tendency to chop around over pretty much all time frames meaning a change to this trait can only be viewed in a positive light – especially as clean price action has evolved during strength.  The short term target put forward a few weeks ago sits just beneath $40.00 and remains a high probability target area.  In fact that higher level is an integral part of the larger patterns and needs to be watched carefully as it’s approached – assuming of course it’s going to be although it does seem likely.  If the target is tagged and rejected then the prior pivot low made a couple of weeks ago could be revisited before the trend higher continues.

Impulsive legs should ideally unfold in 5-waves with a nice example shown here up to the high of wave-(i) or-(a).  Price action from that high has pretty much been a straight line decline meaning in theory it should not complete the whole corrective movement.  We’ve been mentioning plenty of flat patterns on these pages over the past few weeks and it could well be that one’s going to develop here as well.  With smaller degree wave-a in position price should had head up to the prior pivot high within wave-b which would set the stage for another small retracement.  It would take a comprehensive break up through $38.00 to invalidate the flat correction scenario so until that level is overcome we have to be cognizant that a little more time could be required before a longer term sustainable trend unfolds.  Either way, short term strength should be the way forward.  Should the flat prove to be the correction of choice the typical retracement zone is unlikely to be tagged.  This is a characteristic of flat patterns and just emphasises the fact that buyers are stepping up before the counter trend move runs to its full potential.  Again, this is a bullish trait and keeps the door firmly open for a longer term trend to evolve.  First of all let’s see whether a corrective or impulsive pattern takes price up to the high of wave-(i) or-(a) as this will provide a big clue as to where price is going to head from those higher levels.

Trading Strategy

If you’re a fan of BHP you could initiate partial positions right here and now though just be cognizant that if the flat pattern transpires then slightly lower levels could be tagged before the trend continues.  This strategy will allow you to be involved should price get on with the job immediately, without getting the pull-back.  Alternatively just put it on the watch list and be vigilant to how price rotates up to the prior pivot high.  That’s exactly what I’ll be doing meaning a little patience is going to be required.  With the Materials sector (refer last night’s review) looking more bullish the stock is definitely worth keeping a close eye on.  We may also put forward a trade without doing another formal review if a low risk entry presents itself shortly.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms