Chart of the week: Lloyds worth just 50p

Anglo American digs an even deeper hole

It just keeps getting worse for this major FTSE miner. Last week, Anglo American was refused permission to extend one of its Aussie mines, it will close a major coal mine next year, and China's growth continues its sharp decline, with demand for commodities falling.

And iron ore prices continue to test 10-year lows near $40 a metric tonne. Prices for coal - which is the devil fuel incarnate - are likewise in a steep bear trend, with thermal coal at an eight-year low.

Here is Anglo's sorry, stunning chart:

(click to enlarge)

In five years, the shares have lost almost 90% - this, in what has been a global growth phase for the economy. There has not even been a recession in these years. This is an extraordinary state of affairs - and incidentally, a vivid demonstration on how a buy-and-hold approach to investing can go horribly wrong.

But remember Baron Rothschild's aphorism: "The time to buy is when there's blood in the streets". I consider a 90% loss as good a definition of "blood in the streets" as an investor will find - so is it time to buy Anglo?

Usually, when a share loses this much value, the company is headed for extinction.  But for this company, which has vast reserves of raw materials, is this a realistic prospect?  In other words, will the world never need coal, steel, metals ever again? But the shares are surely priced for this scenario, are they not?

To my mind, either share prices in previous years were way over-stretched, or today's values are considerably beaten down. Dividends have been maintained and the company remains profitable, so far.

And, at such a lowly valuation, the company must be a takeover candidate (rumours are swirling).

I find myself in the unusual position of covering a beaten-down share which has the high potential to recover in the next few years.  Of course, the price could fall even further below 400p but, in this type of situation, a step-by-step buying programme to gradually accumulate a holding would be a professional approach.

Lloyds bank is at its line in the sand

The taxpayer-rescued bank shares have gone nowhere in the past two years, while it has been building a terrific congestion zone that is now in danger of being a major top.

As you know, I have been very bearish on the financial sector and UK banks in general. My ongoing bear campaign in Barclays has hit a major downside target already.

But this chart should give the bulls pause:

(click to enlarge)

I have a superb lower tramline with multiple accurate touch points and the market is testing it once more. Sentiment is being undermined by the threat to its dividend from the current stress test which could require the bank to boost its capital ratios and reduce payouts. Also, banking sentiment in London is not being helped by Deutsche Bank's woes.

A sharp break of my lower tramline, which I expect, should propel Lloyds shares down to the 50p region at least.

BT - an update

I covered BT on 9 November and this was the chart I showed:

(click to enlarge)

The blue line pair is my tramline set that has provided the up-sloping trading channel at least since 2013. The basic rule with tramlines is that the market will continue to bounce off the lower tramline (support) and upper tramline (resistance) as it works higher.

This will continue until the market pushes through one of the tramlines, in which case the line of support or resistance switches to the opposite polarity. And with the successful test of support of the lower tramline in the 400p area in August, the market was heading back towards the upper tramline and on towards 500p, which was my major target.

This is the latest chart:

(click to enlarge)

Lo and behold, my first target at 500p has been hit - a move of 35p, or 9%, from 9 November.

So what do I expect to happen now? Naturally, with the market over-bought (momentum reading is highly elevated) and with the resistance provided by my upper tramline, the market should pull back. That allows for short term traders to take at least some profits off the table.

Any decline to the mid-point of the trading channel in the 450p area should be met with solid support from the February-August congestion zone - and would present another buying opportunity.

But unless and until my lower tramline is violated, the trend remains solidly up.

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.