This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP
Bottom Line 17/08/16
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $17.29 /$15.85 / $14.06
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 (upside risk short term):
→ Exposure to oil could be beneficial when compared to its peers.
→ FY17 free cash flow could double.
→ The recent lawsuit is concerning.
→ Spot gas prices have been at their lowest level since 2001.
→ The dividend has been cut substantially.
→ Potential reversal zone now penetrated.
Short-term weakness, taking price into the typical retracement zone as annotated was our expectation following our last look at BHP and we couldn’t have asked for too much more in that regard. Not only that, but price has rallied out of the target zone and is now looking to take on the prior pivot high made back in late-April of this year. Results yesterday were dire on the face of it with the company making its worst loss ever. Of course it isn’t quite that cut and dry which is likely the reason for today’s rally. We have to remember that the market is forward thinking and had obviously already priced this poor result in. From a technical perspective nothing changes with our highest expectation being that a countertrend movement higher is unfolding which comes down to the choppy price action higher off the lows made at the beginning of the year.
The recent pivot low likely completes a larger degree Wave-B which offers further upside over the short-term. The wave equality projection sits at $24.48 which coincidentally aligns with the next area of resistance making it an area of confluence. Generally speaking, the more confluence there is, the greater the chance of that area becoming significant. It would take a push beneath the recent pivot low at $18.88 to move us back to a neutral stance and a continuation beneath $15.85 to start ringing the alarm bells again although a decline of that magnitude isn’t anticipated. For now, the risk is to the upside albeit we certainly aren’t getting carried away in regard to a longer-term trend kicking into gear quite yet.
Trading Strategy
If you want to dip your toes in you could initiate partial positions following a push above $21.25 with the expectation that the wave equality projection mentioned above at $24.48 is going to be the next port of call. The initial stop will need to be placed just beneath the prior pivot low which at this stage sits at $20.07. Look to tighten the trailing stop or even take profits at the target. There is no formal recommendation as we prefer the patterns on the chart of South32 ((S32)). In fact, we entered that trade today which for the moment is our full exposure to the sector.
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).
Risk Disclosure Statement
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