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Strong rand makes platinum stocks a buy
Colin Abrams
Posted: Wed, 15 Apr 2009
[miningmx.com] -- THE RAND has been particularly strong lately, not only against the US dollar but also against other major currencies. First we look at the rand's chart against the US dollar and then - as far as the rand affects the profits of resources stocks - we look at the rand platinum price as an indicator of whether or not to buy South African platinum stocks. The US dollar/rand is getting oversold for the dollar, while the rand platinum price is heading for a breakout to determine the direction of the next significant move in those stocks.
US DOLLAR/RAND - DOLLAR OVERSOLD
Trend: Short term rand strength. Medium term sideways. Long term rand weakness.
Strategy: Prepare to sell short the rand.
* The US dollar/rand is in a medium-term broadening formation (lines 3 and 4). Though the
price is heading towards line 3 (8,86) the question is whether it will reverse before it reaches line 3.
* The stochastic oscillator (on top) is oversold for the dollar, which typically points to a reversal to come at any time (ie, rand to weaken).
* Therefore look to sell short the rand, ideally on a reversal off/near line 3 (8,86, spot price). Or sell it short on a closing price beyond 9,70. Do whichever happens first.
* If shorting near line 3, then take half profits at 8,65, more at 10 and the remainder near line 4 at 10,60.
* If shorting on a close beyond 9,70, take profits at 10 and the rest as the price nears line 4 (10,60). Note: A close above 10,65 will be a signal to re-enter to short the rand.
* Stop-loss is a close below 8,80 if shorting from line 3 or below 9,35 if shorting above 9,70.
PLATINUM (in rand) - BREAKOUT COMING
Trend: Short
term sideways. Medium term up. Long term down.Trend: Short term sideways. Medium term up. Long term down.
Strategy: Buy platinum shares on a close above line 2/sell short on a close below line 1.
* The price has formed a large rounding bottom (as labelled). Over the short term it's forming a potential head and shoulders (labelled S-H-S). That pattern is also a descending triangle (lines 1 and 2). The short-term stochastic oscillator is moving into the oversold region, which is potentially bullish.
* Short- and medium-term traders buy platinum stocks on a close above line 2 (R10 800). (Its price at the time of writing was R10 600.) Conversely, sell short platinum stocks on a close below line 1 (R10 300). Do whichever happens first.
* For an upside breakout, the minimum target will be R12 000 - ie, the height of the triangle projected down. For a breakdown, the minimum target will be R9 350. Use those levels as a guide regarding
profit-taking on platinum stocks.
* Stop-loss for an upside break will be a close below R10 300. And for a breakdown a close above R10 800.
Please note: For more recommendations and charts by the author on shares, stock indices and commodities please go to www.themarket.co.za.
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