How Far Can Rio Fall?

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

By Michael Gable 

Our cautious tone from last week now appears warranted in light of the market price action. The whole of last week saw the market finally struggle to go higher, culminating in the violent price action yesterday. Yes, our market rallied off the lows as investors know that buying on the breakout of war is usually a good thing. But the situation is still uncertain, and we are coming off a big rally from the last few weeks. So the markets are likely to hang around here for another few days at best before taking a dip again. So this current sell-off is not the buying opportunity just yet. In our opinion we need to be a bit more patient. Further to our negative comment on BHP Billiton ((BHP)) last week, we also look at Rio Tinto ((RIO)) and National Australia Bank ((NAB)) today. Essentially its a good excuse for traders to exit some longs, and for long term investors to take advantage of this weakness to write covered calls on their BHP, RIO, banks etc, and generate some extra cash/income. When it comes to buying the future dip, one stock that we like the look of is Crown Resorts ((CWN)). In today’s report we look at the company fundamentals and provide you with the best levels in which to start buying.

Rio Tinto

 

One the daily charts, RIO has moved out of an overbought condition on the RSI, triggering a sell signal. However on this weekly chart, we can see other signs pointing to imminent weakness. Like in February last year, RIO has formed a bearish engulfing pattern (indicated by the circles). This is where the stock opens higher at the beginning of the week, and then ends up closing lower than the previous week’s low point. It’s the sign of a trend change and we should see RIO continue to fall. Also like last year, there is divergence on the RSI. It is difficult to know at this point exactly where RIO might stop falling, but there is good support at $60 so we would be targeting that area. Like with our comments on BHP last week, investors unwilling to sell their shares should consider selling covered calls against these stocks.
 

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)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

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

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). 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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