When people note that our Index underperforms the US, one only needs to look at BHP Billiton, our largest miner, and it explains why.
Here is the BHP chart on a weekly basis using a log scale.
[1]BHP’s run up arguably started on 21 May 2003 after it hit THE LOW of $8.22.
THE PEAK was reached on 11 April 2011 at $49.81, representing an increase of 605% over almost 8 years.
The recent low on 18th of July, only last Wednesday, of $30.12 represents a fall of almost 40% in a little more than 15 months.
To wipe out 40% of gains in 15 months, which took 8 years to accumulate, is HUGE.
The question I find myself asking is, “Are we there yet?”
The answer is starting to feel a little like my Switzer Article of 20 March 2011 on Telstra, “Nearly”.
Negatives
1) The biggest negative to BHP’s chart is reflected in the Shanghai Index.
In last Monday’s “Chart of the Week [2]”, I stressed that major support was 2134. This was only 2.4% lower at the time. It was virtually hit 2 days later on 18 July when a low of 2138 was reached.
A break of this level will open up the question as to where the next base will be formed in a range that may be up to 22% lower.
Under this scenario, there is no way BHP will not fall significantly also.
Under this scenario, our Index will fall back to lower levels.
2) The 200-day moving average remains pointing down.
3) Projected targets lower have not been reached yet. Targets of $28.60 (8.8% lower) and $27.83 (11% lower) still remain a viable low yet to be reached.
I have found that the safest buy points are after lower targets have been reached and a “bottoming formation” is looking more and more likely.
Positives
1) For 9 weeks now, the stock has been trying to find a base.
2) Daily and weekly Indicators show that it has bottomed and is due for a bounce.
3) The 200-day moving average, on the daily chart looks more like it is beginning to flatten out.
4) The consequences of Shanghai falling below 2134 are significant and is not anticipated.
A bounce in Shanghai off these lows will lead BHP’s bounce from around these levels.
The projected lower BHP targets could mean there is a lag between Shanghai bouncing and BHP bouncing.
Please note that my views are not for the Long Term. My method results in views expressed that relate to an outlook that lasts weeks or at most months.
Important information: 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. Anyone should consider the appropriateness of the information in regards to their circumstances.