Australian company BHP Billiton (NYSE: BHP) can best be described as a basic materials conglomerate. The company has a hand in exploring and producing/mining a number of commodities such as oil and gas, copper, iron ore and coal.
While it’s not strictly an energy company, BHP Billiton has tended to move more in sync with the energy sector than the basic materials sector. As a result, BHP Billiton stock lost approximately 70% of its value from the summer of 2014 through the recent low in January 2016. Despite this downward move, a new trend has formed so far in 2016.
Looking at the weekly chart, we see the downward trend channel that has dictated the price action over the last couple of years. The stock recently hit the upper rail of the channel and then moved lower. We see that the weekly stochastic readings were in overbought territory before the recent decline and the 10-week RSI wasn’t in overbought territory, but it was at its highest reading since July ’14.
Despite the downward-sloped channel that is present on the weekly chart, I am encouraged more by what I see on the daily chart. We see an upwardly sloped trend line that connects the low in January with the low in April and now the stock has hit this line again in recent days.
In addition to hitting the trendline, the daily stochastic readings were in oversold territory and made a bullish crossover just as they did in January and April. From the low in January to the temporary high in March, BHP Billiton gained just shy of 60%. From the low in April to the recent high, BHP Billiton gained just shy of 40%.
I favor the information I am seeing on the daily chart over what I am seeing on the weekly chart and part of the reason is the sentiment toward the stock, specifically the analyst ratings. Of the 22 analysts following the stock, four have it rated as a “sell,” 13 have it rated as a “hold” and only five have it rated as a “buy.” This leaves plenty of room for upgrades in the coming months.
If BHP Billiton is going to experience anything similar to the gains it saw from January to March and in April, the stock will have to break through its 52-week moving average. Being able to breakthrough that resistance is the biggest concern I have about a bullish play on BHP Billiton. A move from the current price to the 52-week moving average would represent a gain of just over 15%.
I would look to buy BHP Billiton stock at its current price level with a target gain of over 30% in the next couple of months. I would keep a close eye on the stock when it gets up to the 52-week moving average just in case that trendline holds as resistance again. It is possible that you could still log a decent gain without the stock breaking through that resistance.