Chart of the week: Most bullish signal for this share
8th February 2016 13:09
by John Burford from interactive investor
Share on
With commodities, and especially the precious and also base metals now in the rally modes - something I have been flagging for a long time - the massed ranks of short sellers are being mightily squeezed.
For a trader, this is manna from heaven. It gives as much pleasure (and profit) as does panic selling in a phase of long liquidation from over-bought levels (see the FANG stocks - , , and (now Alphabet)).
We have that wonderful combination of metals and miners in a strong rally leg and a general stockmarket in a strong bearish phase. Nimble traders/investors saw this coming and are positioned long miners - or short FANG and many other shares.
Today I will update two miners with very different outlooks, as well as - shares that I have been covering since last year.
Update on Fresnillo
This silver mining company lies below the radar for many investors - but I made a case last year for it to be right up there on your 'buy' list. Today, I have even more reason to do so because the chart has formed a magnificent wedge.
Recall, I love wedges - and so should you! I have pointed out the superb wedge many times - and that pattern has allowed me to forecast the current bear phase. Here is the wedge:
It has been forming for two years, and last week the market broke sharply above the upper wedge line in a show of force. That is about as bullish a signal as you will find.
The upper wedge line is as good as it gets, with multiple accurate touch points, making it a very reliable line of resistance. It has been transformed into a solid line of support with that break last week.
Not only that, but momentum diverged hugely at the recent sub-600p low. This suggests the rally should be considerable - and surpass last summer's high around 1,050p.
Outlook
The price has reached the Fibonacci 50% retrace of the decline off last summer's high. It could pause here, but should go on to test the 1,050p highs, with higher potential thereafter.
Update on Glencore
This share has been struggling to make upside progress and this is the wave count I have:
The market is in the process of making a complex wave four up, off the wave three low set last September. I have waves A and B of this wave four and currently we are making the final wave C of four.
I have been less than totally bullish on , and have suggested that very short-term trades could work out, but not so much longer-term positions. I suggest the company is scrambling to unload some assets (at the bottoms of the markets?) to reduce its mountain of debt. And, with corporate bond yields on the rise, that appears the most sensible course.
Outlook
Upside potential appears limited and I would not be surprised to see new lows below 67p in due course.
Update on Shell
A fortnight ago, I showed this chart on Shell:
There is a lovely trading channel between my tramlines and I pointed out the "head fake" that heralded a rally phase. Also note the momentum divergence at this head fake, suggesting that the rally could have legs.
Indeed, the market has rallied and this is the current position this morning:
On Friday, Shell shares hit the Fibonacci 50% retrace of the decline off the October high - a natural point to at least pause. Now, with crude oil under some pressure, and looking to make new lows soon, this is a moment of truth for Shell.
Outlook
The shares may come back to test the lower tramline's support capability, but if they hold up well in the face of any weakness in crude, that will be a major bull signal. They will then go on to test my upper tramline.
Of course, trading below my head fake around the 1,300p level would cancel out this scenario and lead to further declines, which, I anticipate, would not be extensive.
And if crude oil reaches my target, which is much higher than the current $30, the oil majors will surely trade much, much higher.
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