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Some long-term Buying opportunities

Lesley Beath  |  07 Dec 2010Text size  Decrease  Increase  |  

Page 5 of 8

Sims Metal Management (SGM)

Technical Recommendation: Accumulate

Stop/Loss: na

(Click here for SGM fundamental research and company information)


Technical View

SGM began its correction in July 2009. By October 2010 the stock had declined by 48%.

But as with QBE and MQG, the basing process began mid year, and the October low is viewed as the final turning point in the reversal pattern.

Although the downtrend from the 2009 peak remains intact, a new long-term Buy signal has been registered and it is highly likely that the stock is preparing for the next upleg.

In the short term, SGM has rallied strongly over the past couple of months (+25%) so a pause would not surprise, but although the stock is overbought from a short-term perspective, there is no deterioration in the medium-term indicators. And with a long-term Buy signal intact, risk is skewed to the upside.

The height of the base formation, in conjunction with Fibonacci retracement and resistance levels suggests upside in the vicinity of $23-$24.

Accumulate.

A break below $17 would delay, but not abort the recovery process; that is the stop-loss level.

 

SGM chart

(click image to enlarge)