In this week’s article I have some interesting analysis on BHP, the Australian icon stock (well, once a full blooded Australian stock). This is an opportunity to also continue with more on the role that ISF (Individual Share Futures) can play in your trading game plan.

The first chart that we will look at is the weekly chart from late 1999. You may now be starting to pick up on a recurring theme with my analysis on stocks. I start with the weekly point of view and then zoom in from there. In the first chart we have the range from the December 1999 low of $4.83 up to the top in February 2002, $11.67. Before going much further, some may find those prices seemingly foreign. With the merger between BHP and Billiton, the stock price has undergone adjustment. The good thing about being set up with a professional data vendor like HUBB is that the data will be automatically adjusted for you according to ASX instructions. The adjustment that the data has undergone, does not affect one’s ability to analyse current market action in relation to the historical data.

Getting back to the range under review, the 50% retracement level calculates to be $8.25. The recent market low for BHP was $8.22. That’s close enough to 50% for me. You will also notice that I have added a 1x1 weekly line from the low of September 2001 that also picks up the recent low. (This chart was put together using the Safety in the Market Video Series Software). This recent low also ‘clusters’ with the bottom from August 2002, $8.27. That would be enough reasons for anyone holding short positions in either options or ISFs to consider locking in profits for the time being.

Chart 1

There has been some slight confusion over my reference to the ‘clustering’ of pressure points in the article ‘ANZ – A Short Story?’ Clustering refers to the overlapping or grouping of pressure points. These pressure points may not have been all calculated using the same rule or approach – however they all point to price pressure within a given price range. The greater the analysis perspective, the greater tolerance for variance you would allow. One percent for many markets is a good guide. Therefore for a stock trading at $10.00, you would allow plus or minus 10 cents (a 20 cent band). When it comes to this example there is no doubt that we are within an acceptable range to cluster these points.

In Chart 2 you have the ‘closer in’ view of the weekly chart with the ISF line chart (close) ‘overlaid’ to show the relative movement of the ISF prices in relation to the share price. As you would expect to find they are moving in unison. It is worth noting though, that the ISF is trading below the current physical share price. This would be most likely due to a pending dividend payment by the company and the market has factored in a reaction on the payment of dividends. If you are short term bullish on this stock that could work to your advantage, as the futures will jump back to a premium (most likely) once a dividend is paid. Also when we study the bar chart more closely we can see that the low formed a ‘Signal Bottom’. I have placed circles around the close of the week prior to the low and the week of the low. On the week of the low, the push to new low prices from the open of the week and the rally to make new highs late in the week, closing above the close of the previous week(s), gave a buy signal for the ‘form reader’.

Chart 2

A subtle point to note is that the recent low did just break the 50% and the low from August 2002. That is a very faint sign of additional weakness. The top preceding this recent low is also much lower than the top preceding the August 2002 low (the all-time top), making this a bear market Double Bottom at this stage. For the stock to be considered back in a potential strong bull mode, you would want to see the tops of $9.70 taken out and a significant confirmed higher weekly swing bottom, which could take weeks or months to occur. At this stage the chart suggests perhaps this is only in the short term and we would need to watch the 50% milestone for the Double Bottom very closely.

I would like to remind all readers that my articles are not to be taken in any way as trading advice, they are an opportunity to share some interesting analysis with you so that you may learn a few things along the way and be encouraged to take your personal studies further.

Until next time…

Noel Campbell