Another island reversal for RIO

by Michael Gable

When I last looked at RIO on 20 August, it was trading at $54.90 and I noted the island reversals (marked 1 and 2). My comment was “By shorting it here around $54.90, we place a stop at $57.20, and it should go to a new low under $50.20. Based on those figures its a 2:1 return, but the stock will most likely extend to the $48 area, making it closer to a 3:1 risk reward ratio.” It promptly dropped to $48.37 before rallying again.

We can see on the chart that the recent rally has been on decreasing volume. After gapping down yesterday on slightly higher volume, it has formed another island reversal (marked 3). As a result, the most probable scenario is another fall in the share price. A price of the same magnitude should see RIO head towards $50. Otherwise there is still the possibility of it finding a new low closer to $48 again. For this island reversal to hold true, RIO cannot fill the gap up to $56.26. 


Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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