Zak Mir on a mining trio: Lonmin, Rio Tinto and Glencore Xstrata

You might have thought that for someone who started in technical analysis 25 years ago, when it did not have quite the “credibility” it does now, there is little left to learn. However, I would venture to tell you that the opposite is the case, and not just on the basis that you are only as good (or bad) as your last call.

Indeed, I would suggest that the difference between the “expert” and the beginner is that those with experience are actually learning much more and doing it more quickly than those just starting out with their baby steps. This may not sound very intuitive. But if you think about it for a Wayne Rooney or a Rafa Nadal to remain at the top of their respective games against all the young pretenders, they have to be developing constantly.

On this note I am reminded that it never hurts to take a look at what others at the top of their game are doing. In this respect, reading the technical analysis of Richard Jennings of Titan Investment Partners I have noted the way he tends to use a much more sensitive / fast oscillator than the 14 period RSI that I have used for the past couple of decades. I am “borrowing” this approach today.

While there is merit in sticking to what you know, in the case of Lonmin (LMI) the oscillator reading has just bounced off the 1.5 / 100 level, the lowest reading for well over a year. That the shares have rebounded so sharply is therefore perfectly understandable. This also ties in with what we see in the price window, where there has been a recovery off the floor of a broadening triangle, which has been in place on the daily chart since August, at 233p.

This leads us to conclude that at least while the triangle remains unbroken, and given the extreme oversold state the shares have been in, we are due significant fresh upside. The favoured destination is at least the former March support at 275p. The 1-2 month target could be as great as the broadening triangle top, as high as 320p as a best case scenario.

With Rio Tinto (RIO), the three day fast period oscillator method looks to be in business once again, especially considering that we are back at the post February RSI support line of 14 too. When you add in the way that the stock is also at the floor of a rising trend channel from August – towards 3,150p, then at the very least we have a bargain hunting trade on our hands.

The likelihood is that at least while there is no end of day close back below the May intraday floor we could see Rio move to fill the recent unfilled gap to the downside from earlier this month, at 3,260p, perhaps as soon as the beginning of June. Otherwise, the target for the next 4-6 weeks could be as high as the August price channel top of 3,600p.

The last mining stock in today’s trio comes in the form of Glencore Xstrata (GLEN), and where I am reverting to good old tramlines on the daily chart. Here, the idea of recovery stems from the fact that the shares have delivered a narrow bear trap rebound in March from 295p – just below the former December support at 297p. Recent weeks have also seen a recovery in the shares above both the 50 day and 200 day moving averages.

Also helping out is the likelihood that the next cross between the 50 / 200 day lines will be a golden one. In fact on Monday we were treated to a one day intraday rebound off the 200 day moving average at 320p – an encouraging sign. This could very well be a significant technical signal. The message here is that at least while above the 50 day line at 315p on an end of day close basis the upside for Glencore could be as great as an October rising trend channel top, at 375p, maybe as soon as the end of July.