Materials Sector in Focus

• Australian miners vary bifurcated at the moment.

• Metals markets could land a hand.

• Central banks will have their say.

When you look at the materials sector in Australia, we are a bit all over the place at the moment. This does make a certain amount of sense considering that there is a lot of uncertainty out there as far as global growth is concerned, and of course exactly what the policy of most central banks will be. Quite frankly, we are in a situation where inflation is still a problem, but we are starting to see the economy around the world take it on the chin.

When looking at the materials sector in Australia, there are various winners and losers, but there are a couple of potential signals out there worth paying close attention to in the form of Rio Tinto and Fortesque. In a sector that has been beaten up quite badly as of late, not all companies appear to be moving in similar fashions, as the bifurcation of the materials sector continues.

Gold

Gold continues to show promise as the $2280 level continues to offer significant support. The metal is currently trying to break out of a short-term consolidation area just above that support region, and therefore could give a little bit of a boost to the materials sector in Australia.

Short-term pullbacks will almost certainly attract a significant amount of attention and as long as the $2280 level can offer support, it does make a lot of sense that gold generally will be thought of as a positive for Australian mining equities. Even if the market were to break down below that level, there are multiple areas where buyers might be enticed by lower prices.

Copper

Copper continues to build a base near the $4.50 level, as it is also testing the 50% Fibonacci retracement level from the recent run-up. Copper continues to be in the spotlight overall as traders try to discern whether or not the global growth situation is going to start to pick up, and of course whether or not central banks will loosen monetary policy to facilitate this necessity.

Another thing that traders have been making large bets in the copper space based upon is artificial intelligence, as copper is needed to “electrify everything.” In the sense, copper has become not only an industrial metal, but an artificial intelligence one due to the high demand for copper in that sector. As long as copper can turn around and recapture the 50-Day EMA just above, there is the possibility that it could drag miners in Australia higher along with it.

Rio Tinto

Rio Tinto has been on a downswing as of late, but it is worth noting that the stock is in a massive consolidation phase. The AU$115 level just below offers a significant area of support, while the AU$136 level above is a significant resistance barrier. As things stand right now, the stock is roughly 85% of the way down to the major support region. Because of this, we could be looking at more consolidation, which could very well lead to a bounce. If the metals markets pick up a bit, Rio Tinto could end up being a nice swing trade for those looking to play that sector.

Fortesque

Fortesque has been falling rather rapidly over the last couple of weeks, perhaps starting to put itself on the radar of “value hunters.” That being said, the market certainly looks very anemic at the moment, and the stock could be a bit of a warning sign for those looking to jump into the materials sector in Australia. The next technical support that can be seen clearly is near the AU$19 level, which means we could very well have further to go to the downside. It is also worth noting that the so-called “death cross”, when the 50-Day EMA crosses below the 200-Day EMA, is about to kickoff, which is a technically bearish sign.

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