By Jason Fittler
BHP has been in free fall over the past three weeks breaching its key support level of $39.14 yesterday (12-5-10).
The breakout has bearish implications and shows the primary up trend is deteriorating.
From current price levels, further decline toward the $36.00 area is a fair possibility where support is likely to arise.
The Relative Strength Index (RSI) reached the 20 level today, which indicates the stock is extremely oversold and overdue for a rally.
Lower levels have been seen just once before – during the January 2008 panic sell off.
This suggests that further weakness (if any) would be limited and a short-term rise is likely to take place very soon.
This view is also supported by the oversold MACD and stochastic readings, Bollinger Bands and the open/close price reversal posted today.
The bottom line is that while we don’t want to try to catch a falling knife, we believe the downside in the short-term should be limited and therefore current price levels are becoming quite attractive to open long positions.
Our initial short-term price objective is toward the $41.00 - $42.00 area.
For more information on BHP please call us on 07 4771 4577.