If there’s a story on the stock market in 2016, it most certainly has to include shares on the mining index. Since the turn of the year, mining stocks have been extremely bullish, partly due to a rise across the board in commodities, particularly base and precious metals among other minerals.
Also contributing to the strong upward move in mining stocks is the relief factor. For nearly two years solid before the turn of the year, the mining index had been battered down almost 75%. In fact, if you look over a five-year period, the mining index has been steadily falling (give or take a few short rallies) from all-time highs near 30,000.
Putting things into perspective by looking at the longer view, this short four-month rally is merely a blip on the radar.
During the last two weeks the mining index has pulled back sharply to the March 2016 lows. The question a lot of traders are asking is; is the rally in mining stocks over, or set to continue? With this in mind, let’s take a quick look at two of the biggest shares in the sector.
2015 was a relentless bearish year for Anglo-American shareholders. AAL share price fell from 12.77 spectacularly to 2.17 as fear spread across the markets due to commodities being battered. Analysts were downgrading the share as a strong sell and the market responded.
However, since mid-January’s lows, Anglo-American has bounced and rallied near 300%, a spectacular gain for any investors who were willing to take the risk. Now along with the mining index, AAL is pulling back and has retraced most of its April gains.
On the daily chart there seems to be small area of support around the March lows, similar to the mining index. Marked on the chart below is the area between the 5.00 – 5.50 price level. If this support can hold then its possible the share price can make some further gains. A fall below coupled with the weakness in commodities could see a risky retest somewhere down towards the January low.
Much like most stocks in the mining sector, Antofagasta has been on the slide for over five years. However, it took a little time to lose at the rate of Anglo-American. The real bearish impulse downward began in May 2015 and continued for the rest of the year.
ANTO bottomed out with the rest of the mining index in January 16 and rallied nearly 100% in six weeks. However, in contrast to the mining index and Anglo-American, Antofagasta has retraced beyond the March low and seems to be slowly sliding towards 2016 low.
Is Antofagasta a buy at these levels? It would be a risky punt just now from a technical perspective.
Anyone looking to buy Antofagasta would be smart to wait and see what its share price does during the summer months. A less risky punt would be to wait and buy the share when it reaches the January lows. Stop losses could be placed with small risk below that level.
However, if it does not reach the lows, it would be wise to wait and see if the price can climb back above the 440 level (March support) and show signs of strength above it. That level has been marked on the chart below.
The mining index at the moment is certainly a risky place to invest, but it could bring spectacular gains over the long term if January was the bottom for commodities.
This is not investment advice, but it’s certainly a sector to put on your radar.
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