BHP - A Triangle Play

[WaySolid]

I noticed a possible triangle in BHP in the daily and weekly charts.

I have a bullish view for BHP presently so was not looking for a short, and I think the drying up of movement and volume could point to a quick expansion when it comes.

I watched two bounces intra-day off the support so entered at 21.54. This parcel size is 2x the first size and has a tight stop not far under the support, the first trade stop was moved so that the combined two parcels will be stopped at break even, so a decent risk reward scenario in my view. Could be a feather duster play though if BHP isn't stopped and gaps down on Monday, also likely to be stopped out rather quickly today as well. Time will tell.

Not sure how many rules I'm breaking by buying at the bottom of the triangle either.

Questions: Would an option play (Straddle?) be a wiser move here looking for a range expansion?

*** Just my reading of the tea leaves and NOT and invitation to trade for anyone but myself ***

 

[sails]

If you are considering an option straddle, one suggestion would be just to buy 2 puts for every 1000 BHP shares you own. Has the same effect as a normal option straddle using puts and calls, but would mean you only need to purchase the puts.

One of the negatives of this is time decay on the options, so BHP would need to stop dithering around soon Another one is the puts will slow down profit if it breaks to the upside - however the positive is you should make some profit on a strong move either way unless IV drops off significantly.

Really no easy answers - I have found option trading the same as any other trading - you win some and lose some and only know after the fact which was the best strategy!

Cheers,
Margaret.

 

[WaySolid]

Thanks Margaret.

I will look into that option, would be nice to remove the directional component in such a situation I estimate.

 

[RichKid]

Technically I'm bearish BHP, see the comments in the main BHP thread. The only bullish pattern I can see is a possible pennant but volume doesn't correspond. I see that descending (bearish) triangle about to break to the downside due to the number of red candles and the direction of prices short term (distribution). Just my views, wouldn't a safer option be a break and retest of the all time highs? It's failed a few times this year to get on with it, I'd like to see volume pick up to confirm the bull trend.

 

[GreatPig]

Another possible interpretation of BHP at the moment.

Cheers,
GP

 

[WaySolid]

Will be interesting to note the volume at the end of today. Stops moved up and both parcels still in play. First parcel went within 1c of being stopped on Friday @ 2145.

 

[WaySolid]

Stops moved up again. When to best exit is the toughest question?

 

[WaySolid]

 

[GreatPig]

Another view with my wave count attempt marked in.

I bought in yesterday at $22.29, after seeing it break through the inverted cup shape I drew earlier, and on the possibility it might be starting a wave 3.

Cheers,
GP

 

[WaySolid]

Stopped on both parcels @ 2248.

Dollar returns of $1.39 and $0.94
R returns of 2.17 (single size) and 4.95 (double size parcel)

Index outperformance of 2.26% on second parcel.

I have started recording the SPI levels at entry and exit for my trades and monitoring the outperformance of my own trading vs The SPI.

Cheers,
Andrew.

 

[Ann]

8 February 2006
China cos seek to cap iron ore price rise at 10%

Source: Dow Jones

Chinese steel makers are unlikely to accept a rise of more than 10% in iron ore prices under the 2006 term contract negotiations expected to be completed by March, analysts said Wednesday.

China's largest steel maker Shanghai Baosteel Group Corp. is currently in negotiations with major miners such as Australia's BHP Billiton Ltd., Rio Tinto Group, and Brazil's Companhia Vale do Rio Doce or CVRD to set 2006 iron ore prices.

Last year Chinese companies agreed to a sharp 71.5% rise in iron ore prices and early reports had suggested mining companies are looking for a further 20% increase this year.

When contacted, Baosteel officials declined to comment on the progress of their negotiations with suppliers. The company also refused to comment on their price expectations for 2006.

Despite strong global demand, with China's own steel output growth slowing, domestic producers are unlikely to give in to the demands of iron ore suppliers, analysts said.

"Although China's demand is large and stable because of huge (existing) capacities, the import of iron ore is linked to actual production... Mines should consider their long-term interest rather than focusing on near-term profit," said Gu Yaoqiang, an analyst at Haitong Securities Co. in Shanghai.

Last year, iron ore imported by China under the one-year term contract was priced at $41-$42 a metric ton, free on board. This year's prices will likely be around $45/ton, FOB, according to analysts.

Traditionally, miners negotiate one-year contracts with Baosteel directly while other steel makers use that price as a benchmark for their own contracts.

This year, however, backed by the Chinese government and the industry association, Baosteel is negotiating with suppliers on behalf of most leading Chinese steel makers as part of an agreement reached with smaller mills.

Baosteel is China's largest iron ore importer, importing nearly 30 million tons per year, according to analysts. Around 60% of China's annual iron ore imports comes from Australia and Brazil.
Production growth expected to slow to 10%-15%

Earlier this year, the China Iron & Steel Industry Association predicted the country's crude steel production growth would slow to 10%-15% on year 2006, compared to a growth of 24.56% in 2005.

China's crude steel production totaled 349.36 million metric tons in 2005, according to the National Bureau of Statistics.

Production growth is expected to slow this year as lower end product prices and the oversupply seen from April to December last year will refrain producers from indiscriminately adding capacity.

"As steel prices are likely to fall further this year due to oversupply, steel makers may carefully think about their production volume as producing steel may be not as profitable as in the previous years," said Sun Zhaohui, an analyst at Xingye Securities Co. in Shanghai.

Analysts, however, said iron ore imports by China would still see a rise of 10%-15% this year as Chinese steel makers increasingly rely on imported ore to meet demand for raw material.

But that will be a sharp fall in growth rate after iron ore imports rose 32.2% in 2005 to 275.26 million tons.

"Iron ore imports are usually affected by domestic steel output as well as (domestic supply) of iron ore... Besides slower output growth, we may probably see further increases in domestic iron ore production this year," said steel analyst Le Yukun at Bank of China International (China) Ltd. in Shanghai.

Analysts expected China's iron ore production to rise 10%-15% this year from last year's 420.49 million tons

=====================


Plus a chart showing a very bearish Island cluster reversal pattern...