Chart of the week: Why BT and this miner will rally

BT - phone home!

At least, that is what I thought he said in the 1982 movie E.T. the Extra-Terrestrial. And closer to the present day, the BT chart is no alien to the bulls. It is in a firm uptrend as the company has recently re-entered the mobile phone sector with its takeover of the mobile company EE. It has decided to be very aggressive in offering very competitive 4G tariffs to grow market share. And this may be one of the few mega mergers that actually adds shareholder value!

And with the UK mobile phone market revenues showing little sign of slowing, the market is reacting bullishly and its chart is looking very constructive. Here is the daily chart:

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Note that the dip in August/September was met at major support at the meeting of the Fibonacci 62% level and the chart support provided by the two previous highs in June and September last year. Not only that, but there was a huge positive momentum divergence at last September's low, indicating a sharp recovery ahead.

And that sharp recovery has occurred, as the market has tested the old 480p high in recent days.

Let's step back and review this action. Back in September, as the market was in a corrective downtrend, was it obvious that the EE deal was to be waved through by Ofcom? This was a terrific opportunity to trade against the market!

Outlook

The market is clearly overbought near-term and a dip is likely from near current levels.  But I expect new highs to be achieved in due course. Here is the weekly:

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The market is travelling in the trading channel between my tramlines and I see no reason why it should not meet the upper tramline again in the 500-plus region. A break of the lower tramline, which I do not expect, would change my outlook.

Update on Rio Tinto

There have been some interesting developments since I last covered Rio. In my email of October 19, I wrote: "Now the market is consolidating gains on overbought momentum and I expect support to emerge in the 2,200 - 2,300p region before making another assault on the upper tramline."

This is the hourly chart updated to Friday:

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And on Friday, the market dipped to just under the £23 print, which is right on the Fibonacci 62% support level.  And the decline off the £26 high appears corrective because the waves are overlapping.  In a strongly directional wave, the correctional waves rarely overlap.  The rally off the early October low to the £26 high contains few overlapping waves.  That move is a motive wave and uni-directional and points to the one larger trend being up.

The corrective decline off that high points to a resumption of the uptrend.

Update on Aberdeen Asset Management

This is another issue that has hit my original target according to my forecast.  Back on August 17, my analysis suggested that the 300p level was my major objective and this was the chart I showed:

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I noted the very large rising wedge pattern that started at the 320 level back in 2012 and this is what I wrote:"Also in the above chart, the complex wave 4 traced out a rising wedge - one of my favourite reversal patterns because it allows for a specific price forecast - and that is that when broken, the market's main target is the start of the wedge - in this case, around the 300 area."

And since then, there have been major news developments. On October 28, this was a mainstream media headline: "Aberdeen's shares soar on takeover hopes".  So did that bombshell send the shares back up?  Of course not, they continued their one-way plunge towards my target.  The die was cast for the shares to reach the 300 level, as ordained by my wedge analysis.  Here is the latest chart:

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And by sheer coincidence (!), the 300 level was also the level of the Fibonacci 62% retrace of the latest large wave up.  That was the area to take major short-term profits with the market being short-term oversold (low momentum reading).

Outlook

Now the shares have bounced off the 300 level (on merger talk), is the bull run about to resume?  Here is the short-term daily chart:

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The bounce off the 300 level is in an A-B-C three up (so far) and has hit the Fibonacci 38% resistance zone.  There is a large gap from mid-July and the rally has hit the edge of that gap - often a level where there lurks high resistance.

There is a large momentum divergence at the high and this should be the wave 4 top.  Wave 5 down should have started and the outlook is for more declines ahead to below the 300 low.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.