Glencore PLC (LON: GLEN) is a rather unique company, in the sense that it striving to succeed in mining, a sector that is bruised by the commodity sell-off this year. It then fights this weakness with its commodity trading arm. Basically, we’re dealing with a company that is trying to profit in the trading arena and use those profits to make it in the mining sector as well.
In theory, the combination could be a successful one but in practice, 2015 has been a difficult year, to say the least.
China’s weakness in the last month only puts more pressure on commodities like Gold, Palladium, Copper, and Iron, which are lower. There are no signs that this weak stance is going away any time soon. There is no bottoming, not to mention no reversal signs are in sight. This should weigh heavily on everyone who is relying on commodity prices increasing.
Victims of the low prices can be seen all over the place. Take Australia for example – more than one-third of Australian exports go to China. Of those exports, the vast majority represent commodities such as coal, copper, iron, oil. Mining sector companies, therefore, hope that the current rout on commodities is only temporary. However, by looking at Glencore’s charts, the technical analysis suggests more of the same in the short/medium term.
I am favoring a put option on this asset. They have dropped from over £500/share in 2011, and the current prices are in the £130 area – which is quite the ride. The problem with this move to the downside comes from the fact that it seems to be cyclical, but the cycle, the bearish one, is far from over. One more thing catches the eye: the psychological 100 level is too close for the market not to give it a shot & break it – this is another bearish sign.
Still from a technical perspective, it seems that the break lower from the 300 area came after a triangle was finished, and the measured move of this triangle seems to point well below 100.
All in all, I am bearish on GLEN as I expect the 100 level to give way, and put options are the name of the game. What I would do is split the amount to be invested into two different parts and trade one put option at the current 129 level with the end of September expiration date. Then the other half would be set aside to buy a put option if/when the 150 level comes, still with the end of the month expiration date.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
