Zak Mir – yet more mining misery ahead..?!

So, here we are once again, looking to see whether the beleagured mining stocks are finally starting to rehabilitate themselves.

Once more however, the current picture of stock prices after an initial New Year burst dipping down, appears present just as great a chance of losing money in terms of selling short through getting stuck in a bear trap aswell as trying to go long after a bounce has appeared for the bulls!! Indeed, the main characteristic of this asset class looks to be its ability to confound both buyer and seller alike into chasing their tails. Let’s look at 3 of the major mining plays.

In looking at Fresnillo (FRES), the whipsaw story is illustrated exceedingly well at the moment if one looks at the price action since December where there was a double bear trap rebound accompanied by bullish divergence in the RSI window. The issue was not so much that there was no upside – there was, the shares actually bouncing 10%. The pain is really provided by the way that this week the shares have fallen away so quickly after bull trapping through early December resistance above 760p that it has taken me by surprise. In fact, the peak this month was well below former November support above 800p, something which implies we are still suffering an impulsive breakdown and that at least while below the 10 day moving average – now at 727p – on an end of day close basis, that there could be yet another leg to the downside and the floor of a falling August price channel at 600p.

Kazakhmys (KAZ) is a stock whose charting configuration does not appear to be a million miles away from that of Fresnillo, although at least here we don’t have the reminder of how dire the charting configuration is at the Mexico focused silver miner in terms of the recent unfilled gaps to the downside ahead of the major breaks to the downside. Instead, it has been the case with Kazakhmys that we have been looking at a quite persistent decline within a falling September price channel , largely capped by the 50 day moving average – now at 226p. The view now is that it may be the green 10 day moving average we should be focusing on as the end of day close trailing stop loss at 207p for shorts of the stock. On this basis the risk is that while this feature caps the price action the downside may be as low as the four month support line projection heading as low as 170p, and as soon as the end of January. The fact that there has been an SI line of resistance in place since August – currently at the neutral 50 level – only serves to back the sell argument.

With the third mining stock today in the series, Vedanta (VED) you kind of start to get the picture of where we are technically speaking. Here there is another late summer descending price channel, in this case from August. There is also resistance coming in at a combination of the 2013 price channel top and the 50 day moving average at 920p. In fact the easiest approach here since the middle of September has been to go short on any strength up to the 50 day line, a technical level which worked brilliantly in both early November and late December / early January. The current setup is that one would be looking for further downside towards the August support line projection, as low as 800p, while there is no end of day close back above the 10 day moving average at 899p on an end of day close basis. The extended RSI resistance line failure and latest break below neutral 50 also suggest a new leg to the downside could hurt the bulls hard again.

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