It’s no secret that resources have been out of favour since the 2009 crash. In fact it’s the only sector that never ever recovered and have since made new lows.
Until the recent resources rally it looked all but over for the sector with multiple ratings agency downgrades and sombre outlooks going forward, the recent spike in our mining stocks has brought many an investor some welcome relief.
On an individual stock level, we have seen extreme volatility with massive price swings but the aggregate move has been quite strongly up.
Don’t be fooled, the larger trend is still down but the sector chart says that there is still room for more upside.
I think collectively, our resource stocks can still push 8.4% higher in the short term.
There is still strong short term buying
I have drawn my analysis from the daily chart of the J210 Resources Index
The momentum indicators still signal that dips are being bought. The relative strength indicator of the sector still remains quite strong and does seem to signal underlying strength.
The buying momentum indicator also supports the price momentum indicator so while volatility remains extremely high on certain stocks, the basket of stocks is still moving up nicely.
Look out for the test of upper resistance
I have indicated an upper resistance line with decline from August 2014.
Taking into consideration the momentum indicators that I use, I believe that the Index is going to make a final push to test resistance at around 29000.
That small move based on last Friday’s close is the reason I think there is still 8.4% left in it.
What happens after that will all depend on whether or not that level holds or if the index can smash right through. For now though I think there is a golden opportunity not only to make some quick profits but also the best opportunity for those stuck in some bad trades to exit.
How do you trade this?
As I mentioned, this “resistance” line is a great opportunity for those stuck in resource stocks to consider getting out.
In the short term I think excellent profits can still be made by buying these stocks or the ETF (Exchange traded fund) for a healthy bounce. Trading the CFD for example At 7 times gearing, that means you could scoop over 50% on the margin you use.
This is going to be a quick move.
My analysis is based on the daily chart which is a short term chart so time is of the essence.
I would be looking to buy any pullback from here as I believe the resistance line will be tested within the next seven to days. Seven to ten days to attempt to capture the 8.4% move in the index.
Once we get my anticipated move, we need to be in a position to sell into strength and try to avoid being in during the “profit taking” stage.
Need to know more?
Although my preferred instrument to trade is the Contract for Difference (CFD) there are a few ways to trade this move.
Drop me a mail to discuss so we can choose the right instrument for you
Here’s to profitable trading,
Robby P | Vunani Private Clients