In our Wall Street office yesterday Gregg Greenberg interviewed Mike Underhill, portfolio manager of the RidgeWorth Capital Innovations Global Resources and Infrastructure Fund. Underhill recommended four global resource plays - Barrick Gold ( (ABX) ) , U.S. Steel ( (X) ), Weyerhauser ( (WY) ) and KapStone Paper and Packaging Corp. ( (KS) ). Let's check the charts this active morning and see how we might position these names.
In this daily chart of ABX, above, we can see a bullish technical set up before an anticipated higher opening for precious metal mining names. Last month ABX broke the downtrend drawn from the early August high through mid-October. The 200-day simple moving average line was tested a number of times last month but the slope of this longer-term indicator has remained positive. The On-Balance-Volume (OBV) line also support the bull case going forward. The OBV line rises until early August signaling more aggressive buying as the volume of shares traded was heavier on days when ABX has closed higher. Since the August peak the OBV line has only lost a little ground while the price of ABX lost about 50% of its January to July advance! This tells us that ABX longs held onto their positions in large part even with a 50% retracement. In the lower panel is the trend-following Moving Average Convergence Divergence (MACD) oscillator which is above the zero line or in bullish territory.
This four-year weekly chart of ABX, above, we can see a large base pattern stretching back to early 2013. The 40-week moving average line is pointed up. The weekly OBV line broke out strongly on the upside this year. The Weekly MACD oscillator has been in a liquidate longs sell signal since early August but that is likely to reverse to a new buy signal soon. My next longer-term upside price target for ABX is the low $30s.
Steel stocks are up strongly in pre-market trading Wednesday but X had a bullish chart heading into the election yesterday. In this daily chart, above, we can see the base in December-February and the subsequent rally. Prices are above the 50-day moving average line and above the rising 200-day line. Notice how dips in X in September and October towards the 200-day line were a buying opportunity. The OBV line has confirmed the price strength since early March and the August-September sell off in X was not matched to the same degree by the decline in the OBV line. In the lower panel the MACD oscillator has recently moved back above the zero line for an outright go long signal.
In this four-year weekly chart of X, above, we can see both the foundation shaking decline from the late 2014 zenith to the early 2016 lows. Brave buyers of X in the single digits have been rewarded handsomely. Further, gains lie, in my opinion. X is above the rising 40-week moving average line. The weekly OBV line has been pretty volatile in both directions. The MACD oscillator is poised to generate a new crossover buy signal above the zero line. The next leg higher on X could extend to the $35 area by mid-2017.
This daily chart of WY might be taken two ways. On the one hand rallies on this chart have rolled over and a new high in July and August failed to follow through on the upside. On the other hand (do I sound like an economist?) the chart is showing lower highs in June and November. Prices are below the 50-day and 200-day moving averages but the OBV line has been steady the past four months. The MACD oscillator is poised to give a cover shorts buy signal.
This four-year weekly chart of WY, above, also has mixed signals. Prices are below the rising 40-week moving average line. The OBV line has been declining the past three months and indicates some amount of liquidation and selling. The MACD oscillator is close to breaking the zero line for an outright sell signal. With mixed signals we will let the charts tell us what to do. A close over $33 is bullish and should be bought and a close below $27 will mean the bears have gained the upper hand for now.
This daily chart of KS, above, is giving us a number of reasons to go long. From a February low KS has more than doubled with corrections that have been relatively short in duration. I consider shallow corrections to be bullish as traders are anxious to push money into a stock and I consider corrections that are short-lived as bullish. Here too traders are not allowing the time to play out on the pullback. Short and shallow = anxious to buy. The OBV line has moved up steadily from its February low confirming the rally with heavier buying of KS on days when the stock has closed higher. The OBV on KS could make a new high before prices do - another sign of strength as volume precedes price.
Longer-term KS has a positive chart, above. Prices are above the rising 40-week moving average line. The weekly OBV line has been going up with the price action and the MACD oscillator is in bullish territory. The two moving averages of the indicator have narrowed but they may not be crossing to a sell signal if KS resumes its rally shortly. My next upside target for KS is the $26 area.