One of the lowest cost produces in the world is Rio Tinto (RIO). While the negative effects of a falling iron ore price are clearly having an effect on the share price, RIO has also been in the news for other perhaps more positive reasons. Glencore’s CEO, Ivan Glasenberg has been reported in the press to still be considering some sort of mega merger deal with RIO. Having said that, can we learn something from the chart of RIO? Can we anticipate an end to the current downtrend?

Since the beginning of 2013, RIO has provided us with the same reversal pattern on two occasions to indicate that the uptrend was over. On this weekly candlestick chart, I have circled with a solid line where RIO peaked in 2013 and then once again in 2014. Both patterns are what are known as a “bearish engulfing pattern”. This is where the share price of RIO opens the week above the body of the previous candle but by the end of the week it has finished below it. This dark candle engulfs the body of the prior candle. When you see this occur after a stock has been trending up for a while, then it could indicate the end of the uptrend. In both cases this proved to be correct. Now, if we look at where RIO is currently trading at, you will notice that by drawing an uptrend line connecting the prior two lows, the share price is now sitting on that line. This means that currently there is support for the RIO share price at these levels. I have also circled the prior two candles on the chart. Looking at the dotted line circle, you will notice that the body of the most recent candle is wholly contained within the previous dark candle. This is what is known as a “bullish harami”, or users of bar charts will recognise it as an “inside week”. Either way, it is also potentially signifying the end of the current downtrend. There are no certainties of course, so it will be very interesting to see how RIO trades from here and whether we receive “confirmation” of the reversal by seeing RIO edge higher.

Michael Gable is a member of the Australian Technical Analysts Association (ATAA). The ATAA is a not-for-profit association that has the primary aim of promoting the correct use of technical analysis. Membership consists of both professional technical analysts and private individuals who use technical analysis to assist with decisions related to trading and investing in the financial markets.

With some investors taking a view that markets could recover from here, some will want to know what the charts are saying about a defensive stock such as Telstra. With the share price having fallen dramatically with the broader market, at what point does the share price start to look attractive?

Sometimes stocks will trade within a fairly defined range for a period of time. BHP has famously spent most of the year trading between about $35 and $39, before recently breaking down from that. Telstra has also been in a range for the last year and a half. However, the range itself has been trending higher over time. As seen on the chart, the stock could have potentially been bought at the lower limits of this channel each time and it would have seen the stock trade higher. It neatly satisfies the definition of an uptrend which is a series of higher highs and higher lows.

Once again the stock is at the bottom of its range. There appears to be some support here and we may now get a bounce in Telstra towards $5.50. However, the next dividend is not due until February, so we do not have the prospect of an upcoming dividend to keep the share price additionally supported. So after bouncing here in the short term, there is the potential for Telstra to then dip down towards lower support in the $5.10 – $5.20 range. That would be consistent with a volatile market that is beholden to movements in the currency. This level was derived by noticing that it appears to have been “touched” a few times by the share price. Also, it represents the previous low in the recent uptrend. Telstra is currently on a yield of about 5.7% plus franking.

Michael Gable is a member of the Australian Technical Analysts Association (ATAA). The ATAA is a not-for-profit association that has the primary aim of promoting the correct use of technical analysis. Membership consists of both professional technical analysts and private individuals who use technical analysis to assist with decisions related to trading and investing in the financial markets.

At Trader Plus we have a strong aversion to books with logos on the cover. Nothing screams out self-published quite the same, and despite the growing quality of self-published trading and investing books they are yet to reach the tipping point towards consistent quality.

In this case we’ll make an exception, because the logo belongs to Morningstar and the publisher is multi-national Wiley – both early indicators of quality despite the adage to never judge a book by its cover. So does it live up to the branding? In a word, yes.

Heather Brilliant and Elizabeth Collins deliver a compelling case for the introduction of the concept of moats into your fundamental analysis techniques. Moats refer to those barriers that particular companies are able to establish to limit the effectiveness of competitors (for example, through protecting their work with patents or making it difficult for customers to switch to competitors). Unlike other texts that rely on generalised examples, Brilliant and Collins provide scenarios from actual trading companies to illustrate these concepts.

Where the book offers particular value is through its later chapters focusing on industry sectors and specific analysis techniques to assist with each. Even if you have no intention of doing this analysis yourself (and, surprise surprise, there are some operators out there that do offer this particular research) it’s useful skimming to get a better understanding of a company’s potential performance and performance issues unique to that sector.

The negatives aspect of this book is that it is walking a very narrow line between highlighting the pathway or the pitch. Of course the authors are relying on real-world examples from Morningstar’s knowledge bank – they would be derelict if they didn’t. But by showcasing the extent of the analysis and the high level of granularity required, many traders may feel that the moat is just too wide for them to personally fully harness this valuable tool.

Market: Beginner – Intermediate

Verdict: Worth the investment. Although you may never use the techniques yourself, many of the methods contain valuable insights to approach valuations and analysis of potential investment opportunities. Well worth the read to not only hone in on practical applications, but also get a broader feel for an interesting arena of professional analysis.