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One of the most common questions I get is how to handle a stock (say, RIO or BHP) that trades on multiple exchanges. I have been following Rio Tinto for a long time and in more detail recently as a case study market in an Ultimate Gann Coaching online class.
Any online search engine will give you all the information you need regarding the legal logistics of ‘dual-listed stocks’ (or ‘ADRs’ in US markets). Dual-listed stocks allow investors access to a stock domiciled elsewhere but trading on their local exchange. This means reduced concerns regarding timeliness, access and currency exposure. Investors and fund managers also need to be aware of any tax implications etc., although this is not as great a concern for traders - we are more interested in the short-term than the tax pros and cons.
RIO trades on the ASX, LSE and NYSE - three exchanges in three different time zones. This means we could cease trading in Australia with one perspective and wake up facing a very different one.
The major issue is gaps. RIO is renowned for gapping and this can be very disconcerting, particularly for entries. This was highlighted this week. RIO made an announcement to market on 17 April that it had reduced its production in key areas including iron ore and copper due to weather events. This had a negative effect on the share price and 17 April produced an outside day to the downside.
Chart 1 shows RIO.ASX and includes the gap up/down hilites from Profitsource that illustrate RIO’s tendency to jump around. We know that the other listings of RIO will influence the share price but it’s also important to remember the local currency when looking at multiple listings. RIO is currently trading at $67 AUD.
Chart 1 – RIO TINTO ASX
click chart to enlarge
Chart 2 shows us the London Stock Exchange version of RIO, traded in pounds Sterling and Chart 3 displays the New York Stock Exchange version traded in US dollars. Note the amount of major gaps is reduced and we saw three different bars on 17 April - a down outside day in Australia, an upward-based outside day in the UK and a straight up day in the US.
Chart 2 – RIO TINTO LSE
click chart to enlarge
Chart 3 – RIO TINTO NYSE
click chart to enlarge
Fast forward to the ASX opening on 18 April and (at the time of writing, 20 minutes into the session) we can see that RIO has gapped up, recovering the losses of yesterday and climbing further.
Chart 4 – RIO TINTO ASX
click chart to enlarge
There are certain conclusions to be drawn, some more straight-forward than others. If we do not like major gaps in the markets we trade, then the ASX version of RIO could be avoided in favour of the other exchanges. Another issue is which market is the ‘leader’ and which are followers. I am going to leave that to you to work out. There are some very interesting patterns to be found when we study the RIO complex more deeply.
Good Trading
Aaron Lynch
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