asia stock chart of the week 17 oct 21 oct rio tinto 1834342016

Rio Tinto (ASX: RIO) – Hovering below 55.30 significant resistance with risk of setback

(Click to enlarge charts)

Key elements

• The on-going multi-month rally seen in Rio Tinto from the 03 February 2016 medium-term swing low of 36.53 is now coming close to significant resistance of 55.30.
• The aforementioned significant resistance of 55.30 is defined by a confluence of multiple elements (multi-year descending trendline resistance in place since February 2011, former broken support nowt turns pull-back resistance and a Fibonacci cluster) (see weekly chart).
• Significant medium-term supports rests at 47.80 (ascending trendline in place since 03 February) follow by 41.80.
• The movement of Rio Tinto’s share price has direct correlation with the movement in the global commodities market given the nature of its business. The recent rally seen in Rio Tinto has coincided with the 90% rally seen in WTI crude oil from its February 2016 low of US$26.05/barrel. As seen on the correlation chart, the movement of Rio Tinto and WTI crude oil has a high 30-period rolling Pearson’s correlation coefficient of 0.79 which indicates that that movement of WTI crude oil is likely have a significant impact on the share price of Rio Tinto.
• As seen from the long-term (weekly) chart of WTI crude oil futures, it has rallied into the upper limit of the key long-term pivotal resistance of 51.10 after the recent OPEC’s production cut announcement on 28 September 2016. Technical elements are advocating for a potential medium-term setback/consolidation above the 43.00 support. These observations suggest that the recent rally seen in Rio Tinto may take a pause as well.

Key levels (1 to 3 weeks)

Intermediate resistance: 53.30

Pivot (key resistance): 55.30

Supports: 47.80 & 41.80

Next resistance: 60.00

Conclusion

As long as the 55.30 pivotal resistance is not surpassed, technical elements and cross assets intermarket analysis are advocating for a potential setback for Rio Tinto towards the 47.80 support. Only a clear break below 47.80 (daily close) is likely to open up scope for a deeper decline towards the next support at 41.80.

However, a clearance above 55.30 may invalidate the setback scenario to see the continuation of the multi-month up move to target the next resistance at 60.00.

Charts are from eSignal as at Thurs, 13 Oct 2016

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