Arrium (ARI) (formerly OneSteel), is a $2.14B mining consumables, iron ore mining and steel supply business. My analysis of Arrium being a potential ‘come-back kid’ will probably fly in the face of most investors’ gut feel, as mining and mining services companies in Australia are not exactly setting the world on fire at the moment.
Furthermore, fundamental analysis of this business would not show Arrium as a screaming buy, with both Dividend per Share and Earnings per Share declining in the last financial year.
To further weaken the case for Arrium being a ‘come-back kid’, two weeks ago I looked at the chart for the Continuous Commodity Index which showed that commodity prices were nearing a defining apex, which could see commodity prices fall further or rise to defy a bearish descending triangle. Further weakness in commodity prices should typically not bode well for Arrium.
However, from a technical analysis perspective, the price setup of Arrium points to a high probability of continuing to rise in price.
Chart reproduced with permission from Beyond Charts www.beyondcharts.com [1]The weekly chart above shows a couple of key bullish patterns. Firstly, an inverse head and shoulders (H&S) pattern has formed with a clear breakout above the ‘neckline.’
The H&S has been formed by the last three troughs, with the middle trough (inverse head) being lower than the two troughs (inverse shoulders) either side of the inverse head. The neckline is formed by the two encapsulated peaks and is shown on the chart by the bold blue rectangle.
Secondly, the blue rectangle is a strong support and resistance zone, which the Arrium price has broken through in November.
Arrium may still retrace to test the up-trending channel, shown on the chart by the two red trend lines, or even further to the neckline and support zone. Or it could continue rising directly from current levels.
Arrium was trading above $7 in mid-2008 and $4 in mid-2010. Should Arrium continue rising from Friday’s close of $1.575, its first target is around the $1.90 level before reaching its next major resistance zone around the $2.30 – $2.35 zone. The share price ‘come-back’ in Arrium is well positioned to continue.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Peter Switzer: Rene Rivkin’s tip on making money out of takeovers [2]
- Paul Rickard: Portfolios hold ground in November [3]
- James Dunn: Future Pharma Stars [4]
- Tony Featherstone: Too late for a bite at the accounting software apple [5]
- Rudi Filapek-Vandyck: Buy, sell, hold – what the brokers say [6]
- Tom Hickey: Busiest auction week on record [7]