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Action in resources builds optimism

Lesley Beath  |  08 Mar 2016Text size  Decrease  Increase  |  

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To the extent that any content below constitutes advice, it is general advice (or, in New Zealand, a "class service") that has been prepared by Lesley Beath as a Morningstar authorized representative (ARN 469614) without taking into account your particular investment objectives, financial situation or needs. If necessary, you should consider the advice in light of these matters, consult with a licensed financial advisor, and consider the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does have an interest in the securities disclosed in this report.


Last week was a good one! For some markets it was a "cracker".

Brazil's Bovespa Index took the honours, gaining 18 per cent. Of the global equity markets I monitor on a regular basis, there was only one which posted a loss.

There were 5-8 per cent gains in Greece, Russia, Singapore, India, South Africa, Spain, Japan and Italy.

In the US, the key indices powered through the short-term resistance levels we have been watching in recent times. I noted last week that risk was to the upside in the short term, and the buy signal on the weekly stochastic, which was presented in that report, remains solid. The US T-Bond/S&P 500 ratio has pulled back below resistance so that is another positive factor.

The 2015 downtrend and the 200DMA are the next key resistance levels. Action as the latter is tested will give more guidance. If this is just another rally in an ongoing bear market (which at this stage I feel it is) the 200DMA should cap the current advance.

One of the features of the week was the improvement in the resource space. We have obviously been keeping a close eye on this and I have been highlighting the continuing improvement in some of the resource-based markets, namely Brazil, Chile, Russia and Canada.

There had also been an improvement in the some of the base metals. It was not enough to suggest the outlook for resources had definitely turned the corner, but it was enough to spark some interest.

Last week, the 2015 downtrend we have been watching on a number of resource markets was overcome. Base metal prices continued to improve and copper completed the small base pattern that was highlighted in the last report. This opens an initial target in the vicinity of US$2.35.

Oil (WTI) advanced by 10 per cent after breaking the November 2015 downtrend on the Monday. Some of the US oil companies had a bumper week, with ConocoPhillips up 21 per cent, Anadarko Petroleum gaining 19 per cent and Devon Energy pushing higher by 15 per cent. Just goes to show how sentiment can turn so very quickly.

US gold and copper producer Freeport McMoran jumped 31 per cent.

In Australia, the ASX Energy and ASX Materials indices gained 7 per cent. The former has broken the 2015 downtrend, albeit marginally at this stage. The Materials index sits just below that trend line. The ASX 100 Resources popped almost 10 per cent--it also remains below the 2015 downtrend at this stage.

The ASX Midcap Resources jumped 16 per cent, decisively breaking above the 2015 downtrend.

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