Technical Analysis: Miners out of favour

17th Jun 2009 13:28

A sharp turn around in commodity prices has seen the mining sector go into reverse since the beginning of the month, as profit-taking on the rises of the last few weeks starts to kick in. The LMEX base metal index has dropped from a peak of 2555.1 on the 11th June to close at 2,386.6 Tuesday night in the space of 4 days. The Reuters CRB has also dropped sharply since peaking on the 11th June at 266.The mining sector seems to have peaked in the short term, at 16,374 last week, after a number of attempts to get near the 38.2% Fibonacci retracement level around 16,500. This level represents a retracement of last years down move from 30,745 to 7,788. We have also broken the long term channel support line from the March lows, which could now invite further selling as the sector looks to test the May lows around 12,500. If commodity prices continue to drift back we could well see further declines in the mining sector. The LMEX Base Metal Index has been in an uptrend since late February and has risen steadily since then, but was unable to break above its 38.2% retracement level at 2,538 last week. A break of this key support line, currently at 2,263, could well signal a deeper correction towards the April and May lows.Anglo American: having posted highs of 1,930p at the beginning of the month, it is currently drifting back to its long term support line from the March lows. This support line currently sits at 1,557.90p and is rising at 9 points a day. A break of this support level could open up a test of the May lows around 1,400p.Antofagasta: made a marginal new high of 705.50p last week, but posted a bearish reversal candle on the Friday, and is looking set to test its long term support line from its October lows at 555.80p. BHP Billiton: six successive down days has seen this stock drop from levels above 1,600p, to be heading back towards support around the May lows of 1,350p. A break below 1,300p area could signal further weakness towards the March lows of 1,000p.Lonmin: has also been subject to significant declines this week, down from Friday's close at 1,441p, to be trading around 1,200p. The next support level is at the May lows of 1,105p. Rio Tinto: last Friday's piece about Rio pushing back from its highs proved to be rather timely. The previous highs of 3,193p, now adjusted for the rights issue, sit at 2,637.75p. The support line referred to on Friday now sits at 2,302p and the share price has broken below it, and there is now potential to test support at 2,000p. Vedanta: the high of 1,825p last week stopped just short of the 61.8% retracement level of 1,860p which represents the down move from 2,788p to its December lows of 358.75p. Importantly the reaction back from the highs looks as if it has further to fall, having broken a key support from the reaction lows at 1,501p. Xstrata: despite making minor new highs at 793.50p last week, like the other mining stocks it has been unable to sustain these gains and has posted fresh losses, breaking below its march lows support line today. A close below 705p on Wednesday, which looks likely at the moment, could see prices fall back to the May lows around 562p. Given the nature of the breakdown in prices over the past week the charts suggest that there is a danger of a deeper correction over the next few weeks.For periodic TA updates follow me on TwitterAlso read my Investors Guide to Technical Analysis and Level 2