Resources Rally: Boom or Bust?
Massive Gains in Resources
Is it time to cash in?
Marcus Padley | 1 October 2024 | Education Corner
The
resources sector is up 17.96% in 17 days and is now well overbought on a daily chart with an RSI of 74. This is the moment we have been waiting for, the moment to make a lot of money in a short period of time trading the bottom of the resources sector as it comes out of an oversold sentiment hole. We have taken a few trades, as you know, but have 'kept it in our pants' from a Strategy (Portfolio) point of view. The resources sector has rocketed.
Big Moves in Key Stocks
BHP is up 20.3% since the low on September 6, fulfilling the first half of Henry’s mantra—"Buy at $40, sell at $50". It is now at $45.96. FMG is up 36.7% since bottoming on September 10 at $15.88, now at $20.68. MIN has surged 76.3% in 15 days and is up 48.3% in six days. PLS is up 41.5% in 15 days and 19% in six days. And that's just some of them.
A Time for Caution
I am never one to stand back and wag a finger at people making money, and I hope, like everyone else, that this is a "big" pivot point, not just a short-term rally. The good news is that this rally shows up on the long-term charts and has some of the anatomical signs of being a major low (a short sharp start). However, I am sceptical. These Chinese announcements are, in my humble opinion, more desperate than effective, more hopeful than guaranteed, and the timing, just ahead of the Golden Week holiday, leaves everybody a bit vulnerable as the Chinese markets, PBoC activity, economic indicators, and commodity markets, including the iron ore price, go dead for a week.
Watching the Herd
This is one of those moments when you have to watch the herd. The herd has lost its head. It is justified in the short term. Sentiment has changed, and sentiment is important to share prices, but believing these measures will meaningfully change China's economic trajectory is a gamble. These measures are a bit like throwing rocks at an oil tanker.
The Bubble is Here
We have seen the "Rocket", but I think we have a "Bang" coming. This short-term rally will deflate at some point. Possibly rapidly. If making money in the stock market is about spotting stocks that have dropped into a sentiment hole, then it is also about spotting stocks that have found themselves in a sentiment bubble.
Short-term, we are now in a sentiment bubble. And for the superstitious, you might also like to know that I am going on holiday next week, and you know what that means!
What’s Ahead for Resources?
The jury is still out on the medium term. Keep watching the herd. Traders, take your profits when the herd stumbles.
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