Sizing Up BHP

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

Bottom Line 04/02/15

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support levels: $28.57 / $26.50
Resistance levels: $35.00 / $39.79

Technical Discussion

BHP Billiton ((BHP)) is a diversified natural resources company and operates through customer sector groups (CSGs). The Company operates in nine sections; Petroleum, Aluminium, Base Metals, Diamonds and Specialty Products, Stainless Steel Materials, Iron Ore, Manganese, Metallurgical Coal and Energy Coal. In May 2014, Cassini Resources acquired BHP Billiton Limited's West Musgrave Project. For the year ending the 30th of June 2014 revenues increased 2% to $67.21B. Net income increased 23% to $13.83B. Revenues reflect the Iron Ore Production increase of 28% to 56.9M metric tons.  Broker/Analyst consensus is currently “Buy”. The dividend yield is 5.1%.

Reasons to be more optimistic longer term.
→ BHP is well-placed to ride out recent weakness within the sector.
→ Production is set to increase by 23% by the end of 2015.
→ Diversification and being a low cost producer is positive.
→ Capital Management is likely further down the track.
→ Net debt should fall to US$25B next year.
→ Nickel is hovering around a two-year high which is positive news for BHP’s nickel business.

What a difference three weeks makes; that’s how long it is since our last look at BHP where buyers were still struggling to gain any sort of traction.  However, there were some positives during our last review with one being the demand that transpired around the wave equality projection.  We also noted that volume had started to increase which was another small step in the right direction.  Finally, and more significantly Type-A bullish divergence was evident on the weekly time frame although at that juncture it hadn’t triggered.  It has now. 

The bullish confirmation we’ve been waiting for has finally showed through, especially over the past three sessions where price action has become parabolic in nature.  Price yesterday closed above the line of resistance which is another hurdle that’s been overcome.  In a perfect world we’d like to see old resistance/new support revisited though in the current environment it’s by no means a certainty that a healthy pause for breath is going to unfold.  Either way, there is no reason why the next area of resistance around $35.00 can’t be the next port of call. 

That all said, we still need to keep our feet firmly on the ground and be cognizant to the fact that in the bigger scheme of things the company has only clawed back a small percentage of the significant retracement that commenced in early 2011.  As it stands right here and now it’s going to take a break beneath $26.50 to move back to a bearish stance; although not impossible the risk is now turn to the upside, albeit a pause would be ideal around current levels.

Trading Strategy

After the parabolic movement higher over the past few days it should come as no surprise that a low risk entry isn’t presenting itself.  All we can do for the moment is remain patient and hope that a micro consolidation pattern or even a small a-b-c correction takes price back down to old resistance/new support just above $30.00.  This would be the ideal situation from a pure trading point of view.  Is also quite interesting that RIO made it into the “Dividend momentum strategy” last night which is something that’s been unheard of in the past.  Still, this just reiterates the fact that both BHP & RIO have fallen from grace which in turn has provided an attractive dividend yield.
 

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

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