BHP Billiton is seen as a proxy for the Australian resources economy and one of the major underpinnings of the local sharemarket, along with the banks and Telstra. The progress of its share price chart has traced the history of the China boom.
A decade ago BHP came off lows of $11, rising to $50 in May 2008. The global financial crisis saw it fall back to $22 later that year. When China began reflating its economy it hit post-crash highs of $49.81 two years ago as the resources boom returned.
This week's chart, produced by Michael Gable, a director with the Australian Technical Analysts Association, looks at BHP's progress during the past six months. BHP ran off lows of $30.43 last July (not shown on this chart) then climbed before weakening to about $34 in October.
The $38 level acted as a resistance during 2013 but the stock broke through in February this year reaching a high just under $40. The almost vertical shape of that spike suggests that investors were piling in after a strong half-yearly report that saw underlying profits up 31 per cent.
This phenomenon is common with big miners, where media coverage of strong profit rises creates a fear among investors on the sidelines that they will miss exposure to upside if they don't act. The February peak was marked by buyer resistance to the high prices with intraday prices (not shown here) often well above the daily closing price.
Anyway, those over-eager investors eventually got burned with BHP falling back to $35 in March. Since then the stock has run strongly again, breaching the $38 mark before slipping back in the run-up to Easter.
The fact the $38 level has provided significant resistance probably means the February high will prove the top of the market in the near future.
That suggests the big miner's shares will drift lower in coming months. Gable suggests a target in the low $30s. For a miner, BHP is on a healthy dividend yield of 3.1 per cent. Shareholder returns have varied in recent times, being 19.7 per cent for the past year, minus 3.1 per cent over three years and 5.6 per cent over five years.
Long-term holders have received an annual 15.1 per cent return over 10 years.
Its recent strong profit performance was largely driven by increased productivity at its brown field mining sites.
This column is not investment advice. rodmyr@gmail.com. ataa.com.au.
The writer has BHP Billiton shares.
