China Stocks: Shanghai Index Wakes Up -What Does It Mean For Miners?

A Look at the Miners: RIO, SWC, CLF

In recent weeks U.S. markets have experienced some long-anticipated selling pressure, but overseas the SSEC (Shanghai Composite Index) might be telling us the second largest economy is ready to rev its engines after years of sluggish momentum.

The bulls for the Sleeping Giants (HPQ, INTC, CSCO) may have anticipated the SSEC’s latest move. Today, the SSEC trades above its 10/50 week moving average, confirming that it is time again to look at who else the market anticipates will benefit as China wakes up.

Miners sees accumulation while the S&P 500 (SPX) sells-off. Below are the weekly charts for Rio Tinto Plc Adr (RIO), Cliffs Natural Resources Inc. (CLF), and Stillwater Mining Co. (SWC). Overall, these miners have so far resisted the selling pressure experienced by the general market.

Figure 1 is the weekly chart for RIO. In recent weeks, it has broken above its multi-week “W” base. The next anticipated resistance for the bulls is RIO’s 2012 high. This will be the fourth attempt for RIO bulls to break thru this resistance. Note the heavy sell-off in 2011 when many traders were caught on the wrong side of this battle zone.

Figure 2 is the weekly chart for SWC. SWC broke above its 10/50 week moving average earlier in the year, and has taken few rests. However, like RIO, SWC is approaching an important area of resistance. Once again, an important congestion zone from 2011 is on the radar at its 261.8 Fibonacci extension. In a strongly bullish market, congestion zones can be easily overtaken; however, today it is worth noting the general market is under selling pressure. In fact, earlier this month, the bears were able to push back in elevated volume. However, so far SWC’s bulls have not been easily deterred.

Figure 3 is the weekly chart for CLF. CLF compared to RIO and SWC, is undoubtedly the laggard. It is worth noting, however, that at least in recent weeks, CLF has been under heavy accumulation while the general market has sold off. CLF still trades below its 10/50 week moving average and so still has much to prove, for now it is worth noting that money is flowing eagerly into CLF. This may simply be another testament to the anticipated demand for the miners, but CLF is worth watching to see if it breaks above its 10/50 week in volume.

TakeAway

The market is again anticipating China to join the rotation. Last fall’s attempt fell short when the SSEC retreated back below its 10/50 week moving average. Time and time again, recoveries have taken longer than anticipated, but for some groups’ action, e.g. the miners and the Sleeping Giants, indicate the bulls in these groups may be anticipating China’s demand when it returns. RIO, SWC and CLF are worth placing on your watch list.