Base metal miners are on a roll, and with BHP Billiton (LON:BLT) reporting overnight on Tuesday, Antofagasta (LON:ANTO) on Wednesday and Anglo American (LON:AAL) on Thursday, let’s review the sector to see if this rally has legs.
Before I go on, let’s set the scene. Firstly, 2016 was a great year for the peer group with base metal miners benefitting from recovering commodity prices, effective cost cutting and debt-management strategies. An overall theme we found very profitable.
2017 has started in the same vain. The FTSE 350 Mining sector index is up just shy of 14% -- that’s double the next best-performing FTSE 350 sector.
‘Trumpflation’ A Bullish Backdrop
Having seen the sector outperform so far this year, it comes as no surprise that the trading updates this week revealed no ‘smoking guns’.
Production estimates were little changed and chatter that we are now past the commodity-cycle lows continues to grow.
Throw in the backdrop of ‘Trumpflation’ and dollar strength firmly in the cross-hairs of the new US administration and many are asking, 'is this a buying opportunity?'
Buy The Rumour, Sell The Fact?
Sure, a well-established uptrend is in play for the peer group but we are not jumping on board. Or at least, not yet. See BHP Billiton’s 9-month daily candle chart below.
Yes, the uptrend is there for all to see and prices gapping higher from a period of consolidation on Tuesday is a sign of bullish momentum.
However, Wednesday’s candle caught our eye. After gapping higher at the open and rallying to new-trend highs, prices fell steadily throughout the day to form a sizeable bearish engulfing pattern -- a clear sign of buying exhaustion.
In truth, we are seeing similar signs across the peer group. As I write, Anglo American is trading more than 3 times its 14-day average true range (ATR) away from its moving average. See below Anglo American’s 9-month daily candle chart.
As the above chart shows, after prices gapped higher Wednesday on the release of earnings, shares then traded lower intraday and formed an indecisive doji candlestick -- yet another sign of buying exhaustion from a base-metal miner.
So yes, we continue to watch base-metal miners for potential entry points in this stellar uptrend. But no, we don’t see that time as now.