The BHP share price has enjoyed a rise from $14.20 that started in late January this year when all the news was doom and gloom based on weak commodities prices and the worst start to a calendar year for stocks for decades. The trend that has since developed shows classic longer-term accumulation in BHP.
BHP’s share price has recently risen above a resistance zone between $21.50 and $22.50. This zone is now a support zone which was tested with a short-term pullback earlier during October. Technically the odds are high that BHP should push higher from here towards the next resistance zone between $27.50 and $29, some 20% to 25% away.
Of course, as I always counsel, those who wish to limit risk to the downside should determine a price level at which they exit the trend should BHP’s price fall. For me that is $21.82 as shown by the trailing stop loss line which signaled an entry at $16.89.
Source: Beyond Charts
The twenty-six-year chart below of Blackmores (BKL) shows firstly that BKL has indeed been a long-term growth stock, and secondly that it has suffered decent pullbacks over the years that have typically been around 60% to 70% of the prior price run-up.
In the Switzer Super Report Stock Selectors on 9 November 2015 [1], I rated BKL as a “Don’t Like” when I warned that stock price movement can become euphoric and that BKL was showing typical signs of euphoria at that time. The chart below shows how far BKL’s share price extended above its twenty-six-year channel, demarcated by the bold black channel lines. At $175 it certainly was not time to be buying back then, unless as a short-term trade with which you would be extra-vigilant. History shows that euphoria extended the share price to an all-time high close of $220, way above BKL’s long-term trend.
Source: Beyond Charts
The beginning of 2016 saw BKL start its inevitable pullback. True to its nature, it looks like BKL will reach the target 61.8% retracement around $96 to $97. The question now is whether it will fall further than that.
The chart below shows that BKL’s share price has just re-entered its long-term rising channel by falling below the rising upper black channel line. Simultaneously, it has also fallen below the lower declining red channel line, indicating further price weakness.
Source: Beyond Charts
Given that BKL’s share price has only just fallen back into its long-term rising channel, the pullback may extend lower than BKL’s typical 61.8% retracement. I suspect that it might go all the way to the lower support zone between $79 and $84.50 which is lower than the price of $95 to $96 that I mentioned on Switzer TV [2] on Tuesday night. In any case, as a trend following technician, I would recommend that investors wait for prices to stabilise and start rising before taking a new long position. This could be many months off.
Gary Stone is the Author of Blueprint to Wealth: Financial Freedom in 15 Minutes a Week [3] and Founder of Share Wealth Systems [4].
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.