On the recent London visit from God’s Own County by our Ambassador and Spreadbet Magazine Founder Mr Richard Jennings one of the aspects of our meeting that I was struck by was his method of technical analysis. Given that his day job is as a fund manager of a fund that has been doing rather well in the recent past, it is difficult to sniff at my approach, even though yours truly is supposed to be one of the better exponents of the art form!
Indeed, the killer comment from Mr Jennings was along the lines – literally – of how he very often cannot work out on what basis the trendlines on which much of my charting is derived are drawn from? Years of experience is my favourite answer! But, perhaps the best way of illustrating the point would be to look at a couple of mining stocks, an asset close to the heart of the Titan Investment Partners supremo.
Kazakhmys (KAZ) is a stock which I know is close to the heart of both myself and Mr Jennings, something which is said on the basis that this has been a very difficult stock to get a handle on – both as far as the technicals and the fundamentals are concerned.
On the technical side, it can be seen from the daily chart that this has essentially been a situation where the bears have predominated, even though the June – August recovery was, at the time, a very credible lasting reversal point. The situation now is that I defy anyone to argue with the April descending price channel with its support line running towards 160p. This is the implied target over the next 4-6 weeks, especially while there is no end of day close back above the 10 day moving average now at 220p. Perhaps the only point I would say in favour of the bull argument currently – to negate the “below 220p targets 160p” message, is that there is bullish divergence in the RSI window between the November price lows and the lower December floor we have seen to date. This would suggest that if the shares of Kazakhmys can break back above the 10 day line then we could see an intermediate rally back towards the April price channel top at 260p. But it really has to be admitted that making such a call really is going against the grain of what this chart has been saying in recent months. After all, as they say, “the trend is your friend!!
Moving on to Vedanta Resources (VED), and it can be said that in many ways we are looking at a situation which makes the set up at Kazakhmys appear to be something of a party for the bulls! This is because the angle of descent of the falling April price channel is so steep giving an implied 650p support line projection target that is far below the present share price. Of course, we could be treated to a Lazarus like recovery instigated by an end of day close back above the 10 day moving average at 853p. However, even this would be quite an achievement given the way that the 10 day line has blocked the price action for over a month – a significant period of time, and at the same time with very bearish implications.
The risk is that even though the stock is very oversold on the RSI scale that we could indeed see a fresh leg to the downside from current oversold levels, even if the worst case scenario target at 650p is not reached this side of Christmas.