Too Early To Turn Bullish On BHP Billiton, Rio Tinto

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

Recent technical analysis by The Chartist suggests risk for share prices of BHP Billiton ((BHP)) and Rio Tinto ((RIO)) suggests underlying risks remain to the downside, supporting the view that from a technical point of view, it remains too early to turn genuinely bullish on both resources heavyweights.

BHP Billiton

Bottom Line
14/6:
EW Trend: Corrective
Price Trend: Down
Trend Strength: Strong

Technical Discussion
14/6:
LAYMANS:
The signs were looking ominous for BHP during our last review with price breaking down through the line of support coupled with increasing volume. Not only that but the breakout followed a sideways consolidation during an on-going downtrend. There was no reason to expect anything other than further weakness and although the decline hasn’t been significant up to this point in time there just no reason to be getting bullish at this juncture. There is room for a brief show of resilience here though unless $34.00 can be overcome in a strong movement the risk remains to the downside. In fact a break beneath the low made a few days ago at $30.71 suggests the ultimate target between $26.50 – $28.00 could be tagged in pretty quick fashion. Should this be the path taken we’d be looking for a decent bounce from those lower levels though there is no point looking too far ahead in the current environment. With the Greek elections looming and the continued worries in regard to the Euro Zone we have to be open to the possibility that volatility levels are going to rise over the coming sessions. So unfortunately there is still no evidence suggesting that a turnaround is imminent meaning we have to be sceptical in regard to any lacklustre short term bounce from these levels.

TECHNICAL:
Our wave count remains in position though it’s certainly not looking pretty. If we are correct and wave C is well underway it should travel at least not 0.618x the length of wave-A giving a downside target at $26.57. Obviously the wave equality projection sits significantly beneath these levels though for now we’ll just take one step at a time and focus on the immediate targets. This leads us nicely to the measured move out of the descending triangle which provides a target around the $28.00 mark mentioned above. So there is good confluence around the aforementioned levels which can only be viewed in a positive light. It doesn’t guarantee anything but it increases the chances that some reaction is going to occur at the annotated projections. If we’re looking for some positives then at least Type-A bullish divergence is in position with price recently making a lower low whilst our oscillator made a higher low. It’s something that rarely lets us down and as we can see it has resulted in a brief show of resilience over the past few days. However, the indicator is making its way back into the oversold position meaning we need to be alert for signs of rejection. If the old line of support/new resistance is tagged simultaneously with the oscillator hitting the oversold zone it would add weight to the case for another probe south. Definitely something to look out for should you be looking at shorting opportunities over the next few days. From a pure Elliott perspective it would take a push back up through the high of wave-B to suggest our labelling is incorrect though quite what the trigger for such a movement is going to be is anyone’s guess.

Trading Strategy
14/6:
“…old support/new resistance is often revisited which is what I am looking for here in regard to a shorting opportunity in the not too distant future” Should you be considering a trade then continue to look for a retest of old support/new resistance before initiating short positions. As mentioned above the initial target would be at least $28.00 with the potential for slightly lower levels to be tagged. If the bounce fails to materialise I’d be quite happy to be a seller following a break beneath the recent pivot low at $30.70 with initial stop one tick above the prior pivot high which at this stage sits at $32.51 although of course this could change over the coming days. If you’re waiting for the bigger buying opportunity than a little more patience is going to be required.

Rio Tinto

Bottom Line
15/6:
EW Trend: Corrective(?)
Price Trend: Down
Trend Strength: Strong

Technical Discussion
15/6:
LAYMANS:
The picture for RIO was looking a little bleak during our last review having seen quite a parabolic move lower. There was no reason to expect anything other than continued weakness which has certainly been the way forward. If we are looking for positives at least the severity of the fall has diminished though whether a reasonable bounce can kick in from here is debatable. There is scope for a short show of resilience from these levels but ultimately there door is still open for further downside over the coming months. There is every chance that the company will rotate down to around the $48.40 mark which will hopefully be the full extent of the larger pull-back that’s now been in motion since February 2011. The worst case scenario is that price continues all the way down toward $42.00 though the broader markets would have to start to roll over in a major way to get down to those depths. Anything is possible in the current environment of course but a retracement of that depth isn’t our highest expectation at this juncture. In reality we’d need to see a push above the prior pivot high at $72.30 to suggest a major bottom is in position though taking into account the price action of late it’s difficult to envisage those heights being revisited any time soon.

TECHNICAL:
Our labelling remains firmly on track here with the low made just over a week ago likely completing minor degree wave-iii. Should this be correct then a bounce is certainly on the cards though in the bigger scheme of things it shouldn’t amount to agree a deal before the bears once again take control. Looking at the larger degree count the push down from the February high will ideally conclude the whole corrective pattern that commenced well over a year ago. It’s worth remembering that wave-C will ideally unfold as a 5 five leg pattern though if that’s the case then the lower target mentioned above at $42.00 has a realistic chance of being tagged over the months ahead. That lower level is where the wave equality projection sits so has to be given respect. However, the best thing to do here is to let the smaller degree patterns show us the way forward as they are showing good symmetry at the present time. Over the short term it would come as no great surprise to see some type of a congestion pattern unfold with a triangle being the possible correction of choice. It’s quite common for wave-iv to be quite a shallow corrective move and it would be almost text book in this instance should it unfold. Volume isn’t giving is too many clues though last Friday was quite an interesting session as price probed higher intraday only to close on the lows of the session accompanied by reasonable volume. A clear signal that any strength is being sold into which is a bearish sign whichever way you want to look at it. I’d be on the lookout for something similar happening over the next week or two as it would be a confirming factor in expecting lower levels to be reached before a significant low is in place.

Trading Strategy
15/6:
“I’d be more inclined to be a seller as opposed to a buyer though not quite at this juncture…” There is no reason to change this view with sellers still firmly in control. If a small bounce unfolds as a congestion pattern then a low risk entry could be sought with a view to trading RIO down to the initial target around the $48.50 area. As mentioned above if that level is penetrated without a second thought then $42.00 has a high chance of being tagged. So very much like BHP (see above) there is no reason to be looking for a longer term buying opportunity at these levels with more patience being required.

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). 

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