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South to Head North

South to Head North

Here’s a tip for corporate boards – don’t put “South” in the title of any intended spin-offs. “Share price heading south” headlined research reports are inevitable. This may in part explain the brutal rounds of earnings revisions that South32 has suffered since listing. Analysts have sliced original listing earnings estimates of around 15 cents per share to a consensus closer to 7 cents, causing around $370 million to evaporate next year alone.

Ok, you got me. Falling commodity prices may have played a part. Whatever the causes, the share price tumble puts them in an interesting position.

A mix of nickel, alumina and aluminium, coal, manganese, silver, lead and zinc is hardly compelling from a long term, investment point of view. However, for traders, there is a stronger technical signal that could see significant gains.

On the chart, the two lows (blue arrows) are the low points of a “W reversal” formation. The first is outside the Bollinger Bands, and the second within – a necessary condition for the signal. Alert traders may have bought on Tuesday, after Monday closed above the high of the previous day. Extremely conservative traders may wait for trading above the middle of the W at 1.713, although that trade would follow the rules of double bottoms rather than W reversals.

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