Zak Mir’s Mining Sector Technical Analysis – ENRC, KAZ, XTA & VED

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I think it’s fair to say that both the best thing and the worst thing about the mining sector is that it enables you to stress test your technical analysis/trading techniques. We can see this theory put through its paces in particular with Eurasian Natural Resources (ENRC). Even though we have a deep 2012 downtrend, it has very much been a three steps down two steps back up type of affair in terms of the price action. This point is underlined by the sharp rebounds seen in the stock in July, September and even in October before the latest new lows were made under £2.60 in what has proved to be a November to forget for the sector. When faced with these kind of charting antics you not to be patient in terms of where you entry point is and equally importantly have the stop loss zone well established in your mind before you get involved.

The current position in ENRC seems to be relatively straightforward in the sense that we now have November resistance coming in well below previous September support at £2.93. The implication of this is that while there is no end of day close back above the 20 day moving average presently centred at £2.81 the we would expect a 2012 price channel floor as low as £2.50 over the next 2 to 3 weeks. Indeed, it should be noted it is only really the bullish divergence between the September and November lows that is providing a speculative buying opportunity for those who do not believe the stock will trade below the red support line at the £2.50 level. The timeframe for 250p to be hit is the next couple of weeks, after that there is a chance of an intermediate rally.

It has to be said that the price pattern for Vedanta Resources (VED) over the past three months has not been particularly inspiring. This is said on the basis that since September we appear to have had what is effectively a (double headed!) head and shoulders formation with the neckline currently around the 1100p level. In order for the head and shoulders pattern to kick in we need an end of day close back below the intraday low of November at £10.36. But as far as I’m concerned, below the right shoulder at 1100p it will be difficult for the shares to avoid the former September intraday support through the £10 level. Indeed if you are looking for potential buy opportunity within what may be a rising July price channel, it would be wise to wait until at least an end of day close back above the 1,100p zone before targeting the top of this year’s price channel as high as 1210p. Overall, mixed signals here as we wait on sub £10.36 or £11 plus.

From a technical perspective, the set up in Kazakhmys (KAZ) going into Friday’s session (November 30th) appeared to be very sound indeed. This was on the basis that the shares would be powered by the aftermath of a November bear trap from below the October 685p intraday low, as well as the unfilled gap to the upside from the previous session. It should have helped that we had also been treated to an end of day close back above the 50 day moving average at 709p as well. Interestingly however, the strength did not seen from mid week did not last and Kazakhmys put in a dull session to end the week. Nevertheless, the overall bullish technical picture still applies and we can say that while there is no end of day close back below the gap floor of last week at 682p, the upside here should be towards post September resistance of 780p plus over the next 3-4 weeks.

Finally onto Xstrata (XTA) and which for bulls of the stock did not disappoint at the end of the week. There was a double digit gain, as there should be for a stock which broke above  its falling 200 day moving average – now at 992p – and then tested it as new support from above before bouncing higher. Indeed, it is usually the case that breaks above 200 day moving average when it is falling tend to be a sign of a very bullish stock / market movement being in the making. The view now is that while there is no end of day close back below the 200 day line the upside here could be as great as the June price channel top at 1,170p over the next 4-6 weeks. 

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