The investing world waits.
China: what will today’s economic data show?
An economy slowing nicely…grinding to a halt…or picking up speed again?
Your reaction to this afternoon’s Chinese GDP number will vary depending on who you are and where you’ve invested your money.
For many, betting on China’s economy has already cost them thousands, as we’ll show you today. But markets tend to look ahead and price in the bad news.
So today we ask: is now the time to back Australian mining stocks?
Technical trading guru, Murray Dawes says, ‘Not yet.’ Here’s why…
It takes two to make a market.
For the past two years, Slipstream Trader, Murray Dawes has short sold the big Australian mining stocks – BHP Billiton [ASX: BHP], Rio Tinto [ASX: RIO], and Fortescue Metals [ASX: FMG].
But Murray’s traders can only short sell these Australian mining stocks if there’s someone prepared to buy them. Hence why it takes two to make a market.
Fortunately for Murray there have been plenty of buyers. Chief among them it seems is stock broking powerhouse, Credit Suisse.
Today The Age reports:
‘Australia’s top mining stocks suffered another selloff as investment banks continued to trim forecasts for commodity prices and share prices, with Credit Suisse downgrading its target share price for both BHP Billiton and Rio Tinto.
‘The bank’s target price for BHP was revised from $45 to $35 while Rio Tinto’s was revised from $90 to $70…’
That won’t trouble Murray, because BHP has sunk from a one-year high of $43.91 to today’s price of $30.28. Rio Tinto has hit the skids from $83.33 to just $53.80.
To put that in perspective, the last time BHP traded at this level was mid-2009.
So while Credit Suisse was a happy buyer, Murray’s traders were happy sellers. But that’s in the past. Where are these Aussie mining stocks heading next?
If you believe Credit Suisse, both BHP and Rio are heading for double digit gains from today’s price. If you’re bullish and you like the idea of a big double-digit percentage gain from boring old blue-chip stocks, it could be the time to buy.
But before you do, we’ll offer a few words of caution from the man who has short sold both stocks most of the way down from their 2011 highs…
More Falls For Australian Mining Stocks
The Metals & Mining Index [ASXIndex: XMM] has fallen from 5,400 points in early 2011 to just 3,116 points today.
That’s a drop of 42.3%.
And given that the two big Aussie miners – BHP and Rio – make up the lion’s share of this index…and considering how many investors buy these stocks as ‘safe’ blue-chips, it tells you many investors have taken a whole lot of pain since the start of last year.
It was for that reason, and the fact that the Australian economy is so geared to resources and China, that we asked the big man to cast his keen technical eye over the chart.
And we’re glad we asked him, because it turns out the index is at a key technical level. Here’s what he told us:
‘I don’t often like analysing charts in terms of classical technical analysis. I find the old school way of looking at charts too simplistic and not very effective. But every now and again, for example, a classic head and shoulders pattern will jump out at you and can be difficult to ignore.‘The current daily chart of the Metals and Mining Index shows a very clear double head and shoulders.
[See chart below…]
‘The price action has already broken the neckline [blue horizontal line] and as we’d expect, we’ve had the initial impulsive decline from that area.
‘By doing a measured move from the top of the head [H] down to the neckline you can create a target for the XMM all the way down to around 2000 points. This would see the index break below the lows created during the 2008 crash. A move such as this would make sense and I would probably go shopping for some bargains if we saw a false break of those 2008 lows sometime in the next year or so (We might be surprised by how quickly it can get down there).’
When you look at the chart above, that 2008 low isn’t far off.
Bottom line, buying blue-chip stocks because you think they’re safe is the worst advice you can take at the moment.
The Best Way to Profit From the Stock Market This Year
As Murray’s chart shows, although he’s short sold these Aussie mining stocks from the 2011 high, the market hasn’t fallen in a straight line. There have been periods where the market rallied strongly.
On occasions it’s even tested Murray’s resolve about whether he should keep selling the market. But ultimately, his analysis has been spot on.
The stock market is no place for conservative investors right now. You should only buy stocks if you’re prepared to take a punt…and if you’re willing to take losses if the market doesn’t go up.
But aside from that, if you’re not actively looking for opportunities to profit as the market falls, you’re potentially missing out on some of the most profitable action in the market.
Short selling isn’t for everyone, but if Murray’s right it could still be one of the best ways to make money in the market this year.
Cheers,
Kris.
P.S. You can check out more of Murray’s analysis in his latest free report titled, ‘Big Wednesday’.
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