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Well it has certainly been a big few months in the stock market since the tops of late 2007. Today (12 March) I’m here preparing this article and the SPI200 is up over 250 points, the bulls are back with vengeance and the bears are covering for dear life. The SPI200 only just yesterday broke the January low; however for the short term at least, this now looks like a false break. BHP, however, has managed to hold together much better than the SPI200 and really hasn’t seriously challenged the lows made on this stock in January.
In my last article for Safety in the Market Monthly Newsletter we looked at the potential head and shoulders pattern forming on BHP. This pattern is basically a bearish indication but as always with the markets it has paid to stay on your toes.
Chart 1 is the latest BHP daily bar chart with the outline of the head and shoulders pattern marked for you. Looking at the run down from the top in October ($47.70) to the low in January ($31.00) the 50% retracement level came in at $39.35. The challenge on the upside was for BHP to hold above this level. On the downside there were a number of gaps to fill before it even looks like taking out the January low.
Chart 1 – BHP Daily Bar Chart
click chart for more detail
In the heavy declines of early this week, BHP took a dive for a couple of days, but only managed to retrace to the 50% mark between the January low ($31.00) and the February high ($40.30). This 50% retracement level also happens to line up with the first of the gaps and a double bottom – nice support.
With the dramatic jump in the market today BHP has formed what is known as an Island Reversal and if this new found enthusiasm from bulls is sustained then things are looking good to the upside. If BHP takes out the February tops and in turn moves back above the November and December lows, then fresh highs could be the go. The first test on the downside now is nearer with this recent low $31.45 (11 March) being great support – but watch out if it is broken.
Oh, you have to love the volatility of the recent weeks as a trader. It really has been ‘edge of your seat’ stuff and a great opportunity for the confident trader to make money out these large swings. It doesn’t look like things are ready to settle down anytime soon, so for now the good times roll on.
Until next time…
Noel Campbell
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