Further Downside For Rio

This story features RIO TINTO LIMITED, and other companies. For more info SHARE ANALYSIS: RIO

By Michael Gable 

We are approaching the end of the current reporting season and it has been encouraging to see over half the companies beat [headline] expectations. It helps explain why the market rallied 200 points in the last two weeks. After such a great run, it wouldn’t be unusual to now expect our market to either ease back a little or drift sideways for a short period of time. Any short-term weakness for our market is likely to continue to come from the miners on the back of a weak flash PMI figure out of China last week, and the current weakness in the price of iron ore. As iron ore retests its previous lows, we have looked at the chart of Rio Tinto ((RIO)) and made a case for where the stock price can head in the short term here. Not all iron ore miners are vulnerable though, Fortescue Metals ((FMG)) as an example actually looks bullish here, in our opinion. So, potentially there is a pairs trade of long FMG, short RIO.
 

Rio Tinto

On a daily chart, it appears as though RIO has broken a head and shoulders pattern. That takes us to about $62 if we extrapolate out a target. Alternatively, if we view RIO as now pulling back in 3 waves from its high on 12 August, where the "c" leg is 1.6 times the size of the "a" leg, then that also takes us to about $62. You will also notice that the stock has provided 3 “sell signals” in the last 5 weeks by heading in and out of overbought territory on the RSI (circled). So there appears to be a good chance here that we will get further short-term weakness in RIO and that $62 appears to be the ultimate target at which point RIO would find some strong support.

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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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