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If I was pushed to make a choice I would still choose RIO over my old employer, BHP. But no one is pushing me, so I can hedge my bets. My overall view on either would be to go short, as the bias is to the downside.
But we must start with the big picture. Let’s look firstly at High-Grade Copper, a simple indicator for resources because it is a base commodity that goes into so much ‘development’:
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This is a 90-week chart and it shows that there is still more downside, which could complete about July. I will apply my own timing views and suggest that it could take some more months for this wave five low to play out. And in the meantime there will be plenty of ‘false dawns’ when many will think that the world is back on track again. But this could be years away!
The other macro view I look to is the Shanghai Index on the CBOT:
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This shows a similar picture but one key difference is that the wave five low is still some time away and in that, I would trust more.
Neither of these indicators gives us any guidance as to what the Chinese may have up their sleeve. Perhaps they don’t know themselves and if Europe was to collapse entirely, China will focus on domestic infrastructure development projects. But that could also be a bubble inflating for a pop, down the track.
So let’s look at RIO and BHP:
BHP is more than likely going to fall below $30:
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RIO looks set to head below $50:
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There is a little variance in the timing but that is not a big issue. An important point to note is that both stocks could keep heading south and the wave four rally may not happen.
If you wanted to short either stock you would short from wave four – if wave four was to happen.
Such times are not easy to trade and one is better off following intraday time periods rather than daily set ups – but intraday entries and exits must be sharper!
And even when BHP or RIO find a wave five low, there is no saying at this point where they may head. Remember, there are commonly three wave five levels. So after finding one, the market could then push to another low. Or we could see a rally or we could see stagnation.
If you are a long-term buyer, then we are maybe several months away from a possible ‘risk managed’ buying opportunity.
Enjoy the ride
Tom Scollon
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