BHP – The Big Picture

The world’s largest listed mining company has turned a corner. Better global growth prospects have investors contemplating their exposures. Dividend yielding stocks are at the heart of many re-built portfolios,and despite recent rises in share prices still make a sound investment case. Investors seeking to expand their exposures to include growth stocks could do a lot worse than examining BHP Billiton.

BHP Billiton is diversified both geographically and across the commodity spectrum. The three highest revenue generating divisions are copper, iron ore and energy – the most important commodities for industrial growth. Recent rebounds in these commodity prices appear to drive the turn around in BHP’s share price:

BHP – Weekly – The Big Picture

20130117 bhp weekly Source: CMC Tracker

Through the middle of 2012 BHP’s shares put in a “rounding bottom” on the weekly chart. This is a down trend reversal pattern, reflecting slowing selling interest and then increasing buying interest. An up trend has started. The question for investors and traders is when to join the trend?

BHP Billiton – Daily

20130117 bhp daily Source: CMC Tracker

In recent trading, BHP has corrected. The pull back to the trend line also reflects a 38.2% Fibonacci retracement. Investors with longer time frames may find this an opportunity to join the “big picture” trend. While some traders may wait for moves up from this level to confirm, I’ve seen enough, and am looking at the following trade:

20130117 bhp tkt

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
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7 Responses to BHP – The Big Picture

  1. @JackieTheTrader says:

    I agree with your bigger picture in that the current pullback will provide an opportunity to get in on BHP, eventually (but not now). Your stop and target suggest you think the current downside is over, but for me, I’m looking for an XJO correction from 4700 to the 4400’s before the upside resumes and new highs are made.

    • Thanks for your thoughts Jackie – and agree you can only trade your own view. For me, one of the striking aspect of the rally over the last eight weeks is the shallowness of any pullbacks. This suggests to me that investors are underweight and want to get on board on any weakness. With a break above 18 month highas this morning I think the risks are on the upside.

      • @JackieTheTrader says:

        As usual, your comments make sense to me. The BHP setup has a tight stop. Regarding near term risk, the S&P daily chart has a large unfilled “gap” near 1420. I find it hard to believe that the S&P can make substantial moves higher on decent volume until that gap is closed. That’s part of why I think the bigger near term risk is to the downside associated with filling that gap first, before the S&P (and BHP) move higher (which may trigger the tight BHP stop). Medium term, I expect the S&P to retest its 2007 high (and XJO to exceed 5000) but I think we need a decent correction first.

  2. Paul says:

    50-60% fib retracement zone also support/resistance at about $35 looks like a good place to buy to me.

  3. FX Demon says:

    No splinters from sitting on the fence! How does BHP compare to RIO and FMG regarding its Iron Ore exposure and potential upside through 2013? Are there any pairs trading scenario’s?

    • Hi Smithy – yes to pairs. BHP roughly 20% iron ore (revenue), RIO more than 50%, FMG pure play. Haven’t done the analysis, but suspect long BHP short RIO/FMG is the answer….

      • FX Demon says:

        That’s what I wanted to hear! Thanks very much Michael – always appreciative of the interesting perspectives provided by your blog.

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