Market Direction: Front Month WTI Crude – Above $30 Targets $36
Anglo American (AAL): Wedge Breakout Implies Return to 314p
The sad story of the mining sector in recent months and years is that it really has not been an area for widows or orphans to participate in. The trick here was clearly to work out that ultra low interest rates would lead to chronic deflation and suppress economic growth. This concept was perhaps not the most obvious, or at least intuitive, to glean in the wake of the Global Financial Crisis. Instead, the prices of precious metals have been driven down by concerns over a China hard landing – something which hedge fund legend George Soros appears to have got himself into hot water over with the Chinese authorities. They would appear to be concerned that he may give the Renminbi similar treatment to that of Sterling in the run up to the UK’s ejection from the ERM. But getting back to Anglo American… it can be seen that technical traders look to have finally got what they were aiming for in the sense of a bullish falling wedge breakout being delivered today. This wedge has been in place since as long ago as early December. That the stock might be set to move higher has been flagged by the bullish divergence in the RSI window which accompanied the January bear trap rebound from below the December intraday support at 261p. The implication is that, provided there is no end of day close back below this number, we should see a journey towards the 50 day moving average now at 314p over the next 4-6 weeks.
Fresnillo (FRES): 850p in Prospect Above 200 Day Line
Perhaps second only to mining sector darling Randgold Resources, the position on a charting basis at Fresnillo appears to be far better than most of its contemporaries in the sense that we are not looking at a 45 degree drop left to right. It might help that from a fundamental perspective we are looking at a company which is an appealing mix of gold and silver mining in Mexico. Indeed, it may be said that the pattern here in the recent past has been no worse than sideways. This is quite an achievement given the way that most FTSE 100 commodities stocks have definitely been on the back foot for the recent past. Instead, it is possible to draw a rising trend channel on the daily chart from as long ago as July. This has its support line running just below the 200 day moving average now at 687p. The view is therefore that the shares look to be well backed technically while they hold just below the 700p zone. Indeed, while there is no end of day close back below the 200 day line we should be treated to decent progress within the rising trend channel from the summer. The favoured target here is towards the 2015 resistance line projection currently pointing as high as 850p. At this stage only cautious traders would look to buy any dips back towards the 200 day line, to improve the risk / reward ratio, even though with the RSI at 58 this situation is not overbought by any stretch of the imagination, and there is decent positive momentum provided by the January bear trap gap reversal from below the late December 651.5p floor.
Bull Call
Amerisur (AMER): Bear Trap Points to 30p
The South American focused oil & gas explorer used to be a company which I followed with interest, largely on the basis that it appeared to be a situation which was relatively well insulated against the vagaries of the oil price, and given its geographical basis, looked to be in an advantageous location versus many of its sector contemporaries. I supposed the only thing which were were waiting on to complete a rosy picture was an interconnector pipeline. Unfortunately, the plunge in the oil price has meant that, pipeline or no pipeline, the market has marked down shares of this company to back where they were in April this year, at 19.5p. What we are seeing now is a bear trap rebound from below this number, and what may be at least an intermediate rally coming off the back of what is a classic technical setup. Indeed, the view at this stage is that, provided there is no end of day close back below the present level of the 10 day moving average of 19.67p, we should be treated to more upside for Amerisur shares over the next 1-2 months. The favoured scenario at this stage is for a push back to the main post October resistance at 30p plus.
Bear Call
Paypoint (PAY): Break of 800p Leads to 700p
It may be the case that shares of Paypoint are not the most high profile or liquid around. However, such conditions do not always have to be met in order to unleash decent technical setups, whether on the bull or the bear tack. In this instance we are looking to a breakdown for the shares, especially given the way that since as long ago as October 2014 we have been able to draw a falling trend channel on the daily chart. Extra negative momentum is provided by the way that over the post summer 2014 period the stock has offered no less than four main failures at the 1,100p plus level. All of this goes to suggest that we are witnessing an extended top for the shares, something which could lead to an equally extended decline. The expectation in this respect currently is that as little as a weekly close this week / next week below 800p would lead to the floor of the 2014 price channel currently heading to the 700p zone. The timeframe on such a move is expected to be as soon as the next 4-6 weeks, especially while there is no break back above the 10 day moving average at 834p in the interim.