Why Anglo American shares could bounce big

Anglo American (LSE:AAL) and even BMR stuff

Sometimes, it's difficult finding ideas for our daily blurb. Other times, like now, we find ourselves trying to restrain from writing a book.

Our latest problem started when we decided to directly compare Anglo American to the major miners sector index, the well-known NMX1770. This was to prove an error, opening the door to a whole range of stupid ideas.

Oh, our previous article merits a Smug Git award!

Humour aside, just because you can do something doesn't mean you should do it. But in this instance it may prove important, and it's probably going to prove worth paying some attention while we lay out our manifesto for the future of AAL's share price.

Firstly, it has now broken its immediate uptrend since the start of 2016 and calculates with the potential of reversal now to 804p.

Secondly, we're not sold on the concept of coming reversal! Why? This is the reason we could write rather a lot, but suffice to say we compared a rather large basket of mining sector shares against the index and AAL were in a substantial minority.

The mining sector index has not ticked the final box for reversals and can probably be expected to bounce. Of all the shares tested, only Anglo American was signalling coming doom and, thus, we smell rodent.

Unless AAL intend bumping out grotty news, it's unlikely the share price will experience a full-flavoured drop to target. Unless, of course, we've stumbled across the harbinger of gloom for an entire sector.

On the chart, there's a couple of arrows highlighting AAL has achieved a lower low, but the index hasn't.

Third - and this is the smarty pants bit - the share price actually did achieve our 980p to 1,240p ambition during 2016 (a 26% rise, by the way) and the market opted to gap the price higher before the year end.

This suggested a longer term 2,115p is now a valid and perhaps distant ambition. Regular readers will know we salivate a bit when prices exceed our target levels due to the implication of strength.

So, having given a drop target, we've attempted explain why we suspect it shall not be achieved. If the mining sector manages below 14,067 (currently 14,280) we shall of course back-pedal on this opinion.

For now, we rather suspect any weakness on AAL will tend to rebound from 10 quid but would advise, if taking a long position at such a point, for goodness sake check where NMX1770 is at.

For now, any bounce on AAL capable of bettering 1,095p looks like trying for 1,180p initially with secondary, if bettered, at 1,308p.

Finally, we mentioned BMR Group at the beginning. It was one of the shares we ran the numbers against - it's not a major miner but a minor miner, though doubtless with the capability of being blown in the same direction.

We suspect, should BMR achieve 5p, it shall bounce. The share has experienced a truly ludicrous series of movements with any bounce bettering 7p surely worth taking very seriously for the future.

And if your brain is bleeding having read this far, sorry!

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.

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.