BHP Not Out Of The Woods

This story features BHP GROUP LIMITED. For more info SHARE ANALYSIS: BHP

 

Bottom Line 07/10/15

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support levels: $21.61 / $19.07 – $18.12
Resistance levels: $31.06 / $36.05

Technical Discussion

BHP Billiton ((BHP)) is a diversified natural resources company and operates through customer sector groups (CSGs). The Company operates in nine sections; Petroleum, Aluminium, Base Metals, Diamonds and Specialty Products, Stainless Steel Materials, Iron Ore, Manganese, Metallurgical Coal and Energy Coal. In May 2014, Cassini Resources acquired BHP Billiton Limited's West Musgrave Project. For the year ending the 30th of June 2015 revenues decreased 21% to $44.64B. Net income before extraordinary items declined 75% to $3.42B. Revenues reveal Group Production reduction of 21% to $43.46B.  Broker/Analyst consensus is currently “Hold”. The dividend yield is 7.3%.

Reasons to be more optimistic longer term (downside risk short term):
→ The South 32 de-merger is being seen as a positive.
→ Oil rallying is advantageous to its energy interests.
→ BHP is well-placed to ride out recent weakness within the sector.
→ Production is set to increase by 23% by the end of 2015.
→ Diversification and being a low cost producer is positive.
→ Capital Management is likely further down the track.
→ Net debt should fall to US$25B next year.

Despite the strong bounce over the past few days price is almost exactly where we left it during our last review.  In fact we noted back in mid-September that there was no significant sign of demand which kept the risk to the downside.  This is still true, albeit the recent show of resilience could take price to slightly higher levels.  We have a myriad of triangles on this particular chart which of course is nothing new as these patterns have been cropping up all over the place during the past few months both in indices and stocks. The large descending triangle is still significant as the lower boundary should now be acting as resistance.  It’s only minor resistance but price will need to get up and through it with some impetus before we can even start thinking in terms of a low being locked in. 

This means there is still a bit of work to be done before getting overly confident that a larger bounce is going to take hold over the coming months.  Looking at the weekly time frame (not shown) shows the potential to head down to the wave equality projection at two different degrees of trend.  The worst case scenario is that price heads down into that target area between $19.07 – $18.18 making it a zone to keep a close eye on should the recent rally peter out.  Many investors now believe that the mining sector has made a significant low which probably comes on the back of the recent spike higher.  Anything is possible although from our perspective there needs to be clearer evidence of demand before siding with the bulls.

Trading Strategy

A corrective pattern back up toward the minor line of resistance would be reason to look for shorting opportunities although at this stage price action has been impulsive in nature which means caution is required from a trading point of view.  For the moment we’ll continue to give the big Miners a wide berth as we let the patterns settle down and show us the way forward.  In fact from a pure pattern perspective the ideal situation would be to see our aforementioned lower target area tagged rejected though that isn’t going to happen overnight.
 

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