One of the more painful and perhaps also comical failings amongst commentators, analysts, fund managers and investors alike over the past few years has been the search for the floor in mining stocks. It has been almost unbelievable how so many have got it so wrong for so long.
Given that this has been a state of affairs which has lasted for at least two years the main achievement I can claim on the theme of a possible floor in Gold / precious metals is to be aware of the difficulties and allowing discretion to be the better part of valour.
Indeed, precious metals and mining stocks have been a lesson for all involved in the markets in the sense that on many occasions the best way forward is not to take on the market in question, but to simply stand aside. This may not sound like a very sophisticated approach, but since the start of the decade the “wait and see” approach has been a winning one.
The question now, as we head for the end of 2014, is whether the time has finally come to take the plunge and assume a lasting recovery for mining stocks.
Clearly, given the hammering in valuations we have seen – a classic bubble burst situation, buying now would be buying low. But at the same time, we have to acknowledge that none of the attributed factors to the decline, deflation, the spectre of rising interest rates, a China slowdown or economic growth fears have actually gone away. The main plus is that after a one third fall in gold from the peak, and some instances of 90% declines for individual stocks, it is not difficult to suggest that enough is enough. This is especially the case after the latest “selling climax” for precious metals to new 2014 lows.
Anglo American (AAL)
Taking a look at the leading London mining blue chips and it may be argued that while there are not massive charting reversals in evidence, we may at least have intermediate rallies on tap. The point is illustrated on the Anglo American daily chart, with the rebound off the floor of a mildly falling price channel from March. The floor of the channel currently runs towards the 1,300p level, with the positives at the moment being how the neutral RSI level at 50 has been recovered as has the 10 day moving average at 1,329p.
The suggestion now is therefore that while there is no end of day close back below the 10 day line shares of Anglo American could stretch as high as the top of the September 1,467p gap over the next 2-4 weeks.
BHP Billiton (BLT)
Perhaps not surprisingly, the present charting configuration of BHP Billiton is not a million miles away from that of Anglo American, with a breakout of the recent flag consolidation which takes the form of a wedge shaped reversal. The message at the moment is that we should see support come in at or above the December support line projection, especially while there is no end of day close back below the 10 day moving average at 1,624p. The notional 2 – 4 week upside here is seen as being as high as the September 1,799p gap fill resistance.
Rio Tinto (RIO)
Rio Tinto completes the blue chip mining trio in the form of a one year price channel floor rebound, accompanied by a push back to the neutral 50 level for the RSI. What has been particularly helpful towards the bull case was the end of week gap to the upside through the 10 day moving average at 2,983p. This should be regarded as a decent momentum signal, with the idea in the wake of it being that the target here should be as high as the 200 day moving average at 3,329p level as soon as the next 2-4 weeks.
ARE THE MARKETS OVER-VALUED?
GET YOUR FREE COPY OF EXTRAORDINARY POPULAR DELUSIONS AND THE MADNESS OF CROWDS
CLICK THE IMAGE BELOW
The Master Investor Show 2020 tickets are now available. Join us at the Business Design Centre on Saturday 28 March 2020.
Book your FREE tickets today using code: MIBLOG