Materials Sector Looks for Buyers in Oz

• Copper and gold show strength.
• Australia still has “commodity bias.”
• BHP and RIO sluggish on Tuesday, but commodities saw strength in North America

The materials sector, one of the biggest in the ASX 200, has been a bit of a disappointment over the last couple of sessions as some of the stalwarts like Rio Tinto and BHP have both slumped a bit. Ultimately, they are both well supported underneath, but it looks as if the market is still unsure as to where the leading commodities go.

It’s probably worth knowing the gold had a nice recovery during the trading session on Tuesday in the futures market, and therefore it could carry through to the stocks. There are also other commodities such as copper that have a major influence, and copper did recover a little bit as well. Ultimately, when you trade Australian materials companies, you need to be very cautious, and recognise what’s going on in the overall trend on the underlying commodities.

BHP

BHP was down 0.16% in the trading session on Tuesday, but it is worth noting that it is sitting right at the AU$45 level, as we initially tried to rally and fill the gap from last week but failed. Ultimately, it’s worth noting that the market has formed a major “double bottom” near the $42 level, so it does suggest that there are buyers underneath. Volume is a little bit lower than usual, but it does make a certain amount of sense that the trading public will pay close attention to the $46.50 level above, as it should be a significant amount of resistance based on technical analysis. Not only is it an area where we have seen a little bit of resistance, but it is also where the 50% Fibonacci Route level from the selloff at the beginning of the year currently resides. Anything above there could bring in a bit of “FOMO trading.”

Rio Tinto

Rio Tinto was very noisy during the Tuesday session, as it sits at the 20-Day EMA. This is an indicator that a lot of people would pay close attention to due to the fact that it is an indicator that is quite widely followed. However, by the time the trading session in Australia ended, Rio Tinto lost just 5 basis points. It’s also worth noting that the $131.50 level not only features the 20-Day EMA, but it also suggests that we could see a lot of support their due to so-called “market memory”, as it was a major resistance barrier. Underneath there, then we have the $130 level that would be a psychological level that could cause a bit of support, especially with the 50-Day EMA reaching toward that area.

The Influence of the Underlying Commodities

It’s worth noting that the copper rallied rather significantly during the trading session, gaining 2.14% in the futures market, reaching the $4.87 level. The gold market initially pulled back during the trading session as well, but also turned around to break above the $2360 level.

As both of these markets look ready to continue the overall uptrend, it could be a bit of a boon for both Rio Tinto and BHP, as well as James Hardie, South32, and Northern Star Resources. Quite frankly, as commodities go, so will the ASX 200. While there is a huge financial sector, the reality is that outside of Austria, most foreign traders look at it as a place to invest commodities.

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