Mining Stock Could Be Flashing Buy

BHP stock recently pulled back to a notable moving average

Managing Editor
Jul 12, 2018 at 12:45 PM
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Shares of mining concern BHP Billiton Limited (NYSE:BHP) are moving higher this afternoon, last seen up 1.3% at $49.60. BHP has been in a channel of higher highs and lows since mid-2017, and last month touched a two-year high of $52.17 before pulling back. However, the equity's recent dip could signal a buying opportunity, if history is any indicator.

BHP stock is now within one standard deviation of its 80-day moving average, after a lengthy stretch above this trendline. There have been 10 other times over the last three years where BHP has pulled back to its 80-day after trading above it for a significant length of time. Following those 10 prior signals, the stock went on to average a gain of 6.53% over the next month, and was higher 78% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar burst from current levels would put the mining stock around $52.84 -- back in new-high territory.

BHP stock chart july 12

In the options pits, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows BHP's 10-day put/call volume ratio of 1.14 in the 81st percentile of its annual range. This suggests that over the past two weeks, puts have been bought to open over calls at a faster-than-usual clip. An unwinding of pessimism among options traders could add fuel to BHP's fire.

A round of analyst upgrades may also be in the stock's future. Of the 10 brokerage firms covering the mining concern, seven currently offer tepid "hold" recommendations. Likewise, short interest represents about a week's worth of pent-up buying demand, at BHP stock's average pace of trading -- ample fuel for a potential short squeeze.

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