Rio To Remain Weak

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

The Bottom Line 03/07/13

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

Technical Discussion

The Miners continue to remain under pressure which for the most part comes on the back of concerns regarding China and its ability to stave off a hard landing.  The jury is still out on that question which definitely isn’t helping matters.  Markets don’t like vagueness which was evidenced recently with world equity markets heading south on the back of uncertainty in regard to continued stimulus in the U.S.  Over the longer time frame we don’t pay too much attention to fundamentals as the market will do exactly what it wants to do technically irrespective of news events.  That said there is no doubt that headline news is affecting traders and investors mind-set which basically means they become less risk averse when there’s perceived uncertainty or negative news. 

Anyway, let’s get back to the Rio Tinto ((RIO)) chart here which continues to look weak – especially over the medium term.  It would take a break above $60.00 before getting confident in a longer term trend developing although it’s difficult to envisage those heights being overcome any time soon.  A downside break seems more likely although the saving grace could be the minor line of support just beneath the prior pivot low.  In essence, that support needs to hold otherwise a more bearish pattern is going to be triggered offering substantially lower levels to come. 

We remain happy with the larger degree count which shows the previous pivot high made in February completing an intervening wave-(X).  From that juncture the subdivisions are extremely difficult to decipher although this evening I’m going to put forward a slightly more bearish interpretation.  And this suggests that wave-B unfolded as a running flat pattern which means a substantial movement down within wave-C could be unfolding.  The wave equality projection sits down at $41.24 and is a high probability target area should the next move be to the downside.  Whichever way you look at it the trigger point is the minor line of support just beneath $50.00 which needs to hold if the deeper retracement is to be avoided.  The more bullish interpretation is that the combination pattern proves to be a “double three”. 

If buyers remain committed around current levels there is a chance that the second part of the correction completes as a flat which keeps the door open for a continuation back up toward the high of wave-(X) though it’s going to take many months to get up into that region.  So there are a couple of alternatives here although we have definitive levels to keep a close eye on for both patterns.  A push up through the high of wave-B portends to the flat pattern unfolding with a dip beneath support implying the deep retracement is going to be the path of least resistance.  A critical time here for RIO, and for that matter most of the Miners.

Trading Strategy

Bullish divergence is evident on the daily chart shown here though I’m not overly optimistic that it can trigger an impulsive movement higher.  Anything is possible, although buyers have been conspicuous by their absence since February apart from the odd dead cat bounce that’s occurred.  For me there’s no high probability trade available here though we’ll be keeping a close eye on the smaller degree patterns as an opportunity could arise a little further down the track.  As mentioned above I believe the risk is still to the downside though the time for initiating short positions won’t materialise until the August 2012 low, or in other words the minor line of support gives way.  For now we’ll continue to wait and watch.
 

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