Shock! IKN does technical analysis!
I’m no TA-head and never will be. I don’t “trade off signals” or anything else because my investment decisions are firmly based on fundy analysis. However even a chart-knucklehead such as myself watches a few charts; one watched carefully is the gold/silver ratio. Another is Dr. Copper. And today here’s another one that gets followed by this author, the Peru IGBVL index.
The Peru Stock Exchange is one I watch to gauge overall metals market sentiment. With the general good feeling enjoyed by metals such as copper and gold recently, it’s not going to come as much surprise to find that the Lima Stock Exchange General Index, with around 60% of its weighting made up by miners or mining-exposed companies (eg mine services companies), has been rallying nicely these past few weeks from a February low of under 14,000 to today’s (i.e. April 11th) 15,733 (less than 200 points off its 52 week high). The chart here shows the five year longview to give a little more perspective (NOTE to blog May 5th readers: 5 year chart without notes added below this text), but we can see over on the right of the chart that this rally is now pushing on the ceiling of a trading range in place ever since the metals slump of 3q08 rebounded in the middle of 2009.
The RSI is also featured in the chart, with four litle red circles noting the recent overbought spikes. One of those is in place right now of course, with the inference that the recent rally may be at an end. On the other hand, the 2006 and early 2007 period shows quite clearly that in a strongly bullish situation, the index can remain technically overbought for a long period. The reason for showing the IGBVL index today is that, according to this little indicator that has served me quite well on a macro scale, we’re reaching a minor crunch moment for metals and miners. If I see the IGBVL breaking through 16,000 successfully with panache, strength and charm, there’s every reason to expect it to run further. However the threat of a reversal at current levels is also clear and it would surprise no-one to see a mini-slump back to that 14,000 baseline.
As master charter Gary BiiWii would say, it’s all about managing risk. The last time the index reached the 14,000 level I had my eye on this squiggly line and looked for it to reverse, which is what it did (after dipping into the 13k level for a couple of days....I’m not TA-loving enough to worry about the smallstuff and trade the technicals anyway). When the IGBVL moved up and through 15k it was only of passing interest to me, as there was no “crunch point” likely. But now 16,000 is on the horizon, I’m back looking at the performance of the Peruvian Stock exchange carefully. There’s nothing here that’s cause for worry, but there is decent reason to look for a possible downturn. As far as this chart-sceptic is concerned the reasons are not compelling, but definitely more than a couple of weeks ago.
....over at The IKN Weekly for the past month, as it's one of the better tells around to combine the mining industry with the state of emerging markets. Here's the up-to-date 12 month chart......
.....and here's the spiel that came with our first coverage of Peru's IGBVL "general" index back in IKN49 (dated April 11th); since then the theory offered has basically worked out. Enjoy.