Tom Scollon

If you know the limbo rock then you truly are date stamping yourself.  And nothing wrong with that.  But you are also maybe asking yourself if you should be reading stuff about the financial markets.  Maybe you should be kicking your heels up in The Bahamas and letting someone else look after your money.  Maybe more about that another time.

To BHP.  Well the mantra of the limbo rock was ‘how low can you go’ as party revellers eased themselves under the horizontal bar, with head and back low and trailing behind under the bar.

Worldwide investors are wondering how low BHP can fall.  No-one knows.  Anyone who says they know are only guessing.

Let’s look firstly at a Monthly chart:

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You can see that BHP price is relatively high compared with the first ten years on the chart.

With BHP we also must remember that BHP has had many splits etc., over the years and it is hard to know exactly that the original price equivalent is.  Some analysts may know but for me, I am only interested in the relativity.  That is what the price might do relative to today.  Where it may fall to and where it may recover to eventually.  I think about finding the low for my own investment portfolio.  I hold no BHP though it has been a long term favourite of mine.  In fact I have not held BHP for many years.

There are two major factors at play for BHP one is the major and macro factor of global demand for raw materials.  And secondly the micro factors – those that are BHP specific.  It is the latter that has caused this latest rout.  Problems.

And we know from experience that once there is a run on a stock or market rationality goes out the window and price can be pushed well beyond what is reasonable.  Whether BHP is well priced now I don’t know.  Does not matter to me.  I just wait to see a low.

So back to the chart.  If you look at the first BHP above and in particular the OBV indicator below price, we can see that OBV – On Balance Volume has held up well – relative to the last couple decades.  If we look at a short term chart it looks motherless:

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No-body’s child.

My main point of interest – probably like yours is when to buy.  What price might that be at?  And when.

I never expect to buy at the lowest point.  And I expect that I will buy progressively over time.

So I played with some charts to think about what might lie ahead:

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The first chart is daily and suggests a low of $18/19 in January.  That seems feasible to me.  Maybe even before.  Although the chart says, maybe a dead cat bounce first.  Maybe.  Or maybe it goes straight to $18.

It nudged below $20 this morning as I wrote.  Down over 11% for the week.  Who predicted that for this week? Anyone? Not I.  So we just don’t know.  At the moment we can only observe and speculate.

The weekly chart suggests maybe a low of $15 late 2017.  Now $15 is a nice round figure and markets also like them.  2017 is a long way away but somehow I muse.  I don’t think you will have to wait two years.

Enjoy the ride

Tom Scollon