This story features BHP GROUP LIMITED. For more info SHARE ANALYSIS: BHP
Bottom Line 04/05/16
Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend: Down
Support levels: $17.65 – $16.80 / $14.06 / $10.00 – $9.00
Resistance levels: $21.25 / $27.00 – $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 six months ending the 31st of December 2015 revenues decreased 37% to $15.71B. Net loss before extraordinary items was $5.67B against income of $3.86B. Revenues echo the Petroleum section decrease of 45% to $3.8B and the Iron Ore division decrease of 36% to $5.35B. Broker/Analyst consensus is currently “Hold”.
Reasons to be cautious:
→ Today's lawsuit concerning.
→ Spot gas prices are at their lowest level since 2001.
→ The dividend has been cut substantially.
→ Recent results have underwhelmed analysts and brokers.
→ Potential reversal zone now penetrated.
→ Aligned to the price of oil.
Over the short-term at least, RIO has been much stronger than BHP with the prior rallying 46% up to the recent pivot high whilst BHP has only managed 19%. Not only that, but today the company was hit by a US$43 billion lawsuit over the Samarco disaster which resulted in around a 10% decline today. The lawsuit is reportedly for economic, environmental and social compensation. This is a huge increase in the settlement agreed with authorities in March. BHP responded by stating the company remains dedicated to helping restore the environment affected by the disaster.
In terms of the patterns nothing really changes despite today’s huge sell-off. From a technical perspective an a-b-c correction terminated almost exactly on the wave equality projection at the recent pivot high. This means a rotation down into the target area as annotated is our expectation. If we are to see something more bullish medium to longer term it’s important that the 61.8% retracement level sitting at $16.80 isn’t penetrated. If it is, then the bounce off the January lows has been just that – a dead cat bounce and nothing more although at this stage this isn’t our highest expectation. On the flipside, it’s going to take a push above the recent pivot high at $21.25 to start thinking in terms of something more bullish unfolding and although this isn’t quite in the “too hard basket” it’s looking unlikely after today’s events.
The one thing that is providing a helping hand is the price of oil and the fact that commodity prices in general have been looking stronger although whether this trait continues only time will tell. Either way, for the moment a large dose of caution is still required.
Trading Strategy
“…There is simply no reason to want to be involved in a trade in either direction at this stage with clarity continuing to evade us…” This remains our stance. There hasn’t been any technical reason to want to be involved in the big miners for many months now and after today’s announcement coming out of left field, there’s still every reason to give the company a wide berth. Not that we want to concentrate on the fundamentals but as mentioned above, the technical picture still allows for a rotation down to the target area before any sort of rally kicks back into gear. The sideline is a good place to be for the moment.
Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).
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