Technical Tuesday: Rio Tinto PLC

Monthly 

Identifying a trend on the long term chart came relatively easy with this stock which is clearly seen by the downtrend occurring from 2011 till present. We could extend the downtrend backwards towards the highs made in 2008 however I found the oscillations that happened after the bounce failed more orderly than the enormous moves up and down prior to that.

A bearish pattern of Head and Shoulders formed during the period of 2010 to the middle of 2012 but observation shows that the neckline only broke down in 2015 whilst price meandered about for some time. Once the level was broken the price immediately dropped promptly. 

The target hasn't been met and potentially lies around the GBP 12.50 region. The slump in price has resulted in a resurgence from bargain hunters who have subsequently driven the price higher again but as they continue to do so the expediency of their prosperous outlook from the depths of despair may be starting to wear thin. 

Digging deeper into the technical indicators the stochastic is setting up divergence which suggests the downtrend may remain intact together with the situation where the MACD continues to lie below zero indicating bearish sentiment built into the trend. 

Daily 

In contrast to the bearish tone on the monthly chart, the daily looks much more inviting to the bulls than what may be felt on the longer term charts. Outlined in the last year of trade we have an inverted Head and Shoulder pattern formed with a messy break to the upside. This could potentially hold back buyers for a little while longer who require more evidence of a reversal in fortunes for the global mining industry. 

Although noting this factor, there are a number of other supporting technical developments on this chart that could very well help lift sentiment in the coming months.

Firstly the position of price above both the 50 and 200 day moving average which will certainly place buyers at lower levels seeking a chance to join the momentum to the upside. Added to this the bullish signal generated when the 50 MA crossed over the 200 MA which is known as a golden cross. The usual course of action that follows this occurrence is a shift from bearish to bullish bias, an outcome we've seen happen thus far. 

And lastly the indicators situated below the price chart, namely the RSI and MACD, have been highlighted in the areas they've dominated in the past two years. Highlighted in red, both indicators stuck below their respective neutral levels which agrees with the negative sentiment we saw emerge in the sector. However recently we see both indicators being resilient above the neutral level suggesting a bullish undertone.