Technical Analysis: Miners rally off support

24th Jun 2009 16:31

Commodity prices continue to slide lower on the back of doubts over the sustainability of the economic recovery. The LMEX base metal index, which I referred to last week, has continued to fall and bounced off its long term support line on Monday. The subsequent rally in mining stocks has been the result of a slight rally in commodity prices, in the past couple of days, as well as recent talk about M&A activity with Xstrata, Vale and Chinalco all jostling for position, circling Anglo American. The Reuters CRB also bounced off key support at 245, which was the previous high until the late break-out in May. The mining sector, as a result of this rally off these key supports, has rallied from its Tuesday lows, but it really needs to push back above 15,000 to alleviate the downside pressure and to prevent a test of the 12,500 May lows, suggested in last weeks article. The mixed data from the global economy should make for some volatile movements in markets over the course of the next few days and weeks. There have been a lot of contradictory signals being posted across correlated markets. Anglo American: has endured a volatile few days on the back of the Xstrata takeover talk, nonetheless it has so far managed to hold above its long term support line referred to last week. A concerted break below this line, currently at 1,603p could presage a steeper decline towards the May lows.Antofagasta: bounced off its long term support line on Tuesday, currently at 546p. The rally needs to consolidate back above the 5 day highs around 605p to minimise the downside risk. BHP Billiton: stopped just short of its 1,300p support area at 1,315p on Monday, and has rallied back towards 1,400p. A break and close below the 1,300p area could signal further weakness towards the March lows of 1,000p. Lonmin: has also been subject to a great deal of volatility recently, on the basis of the Xstrata takeover talk, with them partly owned by the Swiss based miner. It found support just above the May lows of 1,105p yesterday at 1,120p. a move back above 1,270p is required to minimise the downside risk here.Rio Tinto: the break below the trend line referred to last week tested the support at 2,000p, pushing slightly below it, but not below the longer term trend line. This line remains the key indicator and while above this line the prognosis remains positive, even though momentum is declining slightly. Vedanta Resources: the key level on this stock, despite the rally on Wednesday remains the 1,500p resistance area referred to last week. The break below this level, last week, still targets a potential move towards the support around 1,165/70p. Xstrata: given the nature of the takeover talk of the last few days the share price has held up quite well, however, while below 705p the bias remains to the downside which could see a larger correction to around the May lows of 562p. Given the mixed nature of mining stocks over the past few days it is difficult to say with any certainty what the future long term direction will be. What will be important though is the future direction of commodity prices and this will be where the main commodity indexes come in. A break of support levels on the LMEX and/or CRB could well act as a drag on mining stocks and pull them lower.For periodic TA updates follow me on TwitterAlso read my Investors Guide to Technical Analysis and Level 2