02 Sep 2010
Two stocks to watch - a miner and a bank

Hello there. Welcome to CantosCharts. I'm Steven Mayne from Mayne Financial.

During this session we're going to look at two stocks. We're going to start with Fresnillo. Fresnillo Mining Company is FTSE 100 listed. What we've actually been seeing on this stock is a down channel forming. Obviously, we're not quite sure how this pattern is going to fold out. Very interesting for your traders looking at this stock. Maybe just put these lines in. So just approximate lines of support and resistance.

What we have been seeing is as we approach the top line we can start seeing the stochastic tending towards overbought. We can see the RSI tending towards this level of resistance and we can see that the MACD has been in a downtrend.

So as we come up to here, we're getting confirmation that the next probable move on this stock is downwards from the momentum indicators. So as we know about trading, what we're doing is we're trying to find the best risk/reward for every trade.

So just as we approach these lines, short-term traders might wish to start going short on that stock. But thankfully, with this type of trade, if we get a break from here we might suddenly start getting impulse moves up. So we're not going to get every trade right, of course. Nobody does. What we're trying to achieve is that when we do trade, is that we've got the best possible reward for the smallest possible risk.

As we start coming up to this level, people might want to start initiating short trades. Hopefully we can get a move back down to about 950, start going short about 1,050, making about £1 there. You might only be risking 10p or 15p. Obviously if this line is broken, if this downtrend fails, we're going to start getting impulse moves up, so you might start going along at 1,050 hopefully for a move back up to 1,150.

So we've got some very critical areas here on Fresnillo really, the traders should be watching.

Also, we might be able to see the breakouts actually on the momentum indicators as well. So because historically as we've started coming up towards the top of this channel, we've started seeing sell signals across the three momentum indicators.

If we start breaking above, say, on the RSI and the MACD, above these possible lines of support, of resistance apologies, and we could actually start seeing impulse moves upward, so a very critical time for Fresnillo at the moment.

Just to summarise that and see that clear downtrend, or has been forming, we've got those resistances on the momentum indicators and we have got the stochastic moving into overbought territory.

But, what we've really got to be playing here is the risk/reward for the trade. If we go towards the top end of the channel, we should really have the best risk/reward will be shorting the stock. But if we break above it, might suddenly see impulse moves higher. So very important on your charts at home, draw this down channel into play, copy the momentum indicators you can see on the screen in front of you, just see how this plays out. We've either got an excellent short trade or also an excellent long trade on Fresnillo at the moment.

Now moving forward onto Standard Chartered, obviously the banks have been very much under the spotlight recently of some quite sharp falls after the general reporting season. What we have seen with Standard Chartered is the 200 simple moving average becoming very much into play. The 200 simple moving average on the graph you can see is shown in the black line.

We can see on the 200 simple moving average is the stock tends that and it's acting as support. So it comes down. It has touched it once, twice, three, four, five, maybe six times depending what way you're counting it. Every time it comes down and touches it we're starting to see impulse moves upwards.

So we've seen recently there's a move down to the 200 simple moving average. It's got a buy signal formed on the stochastic on positive divergence.

What do I mean by positive divergence? That means the price action has gone lower whilst the momentum indicator has gone up. Generally when you start seeing these patterns forming, you get a very good indication that the next move will follow the momentum indicators, so hopefully it should follow it higher.

What we've also seen is possible positive divergence here on the RSI. So we've got support on the 200 simple moving average. We've got a buy signal on the stochastic. A possible positive divergence on the RSI as well. So as we see, we can turn back down towards this line. Hopefully we'll start seeing buying coming into this stock and we can start seeing quite good value, good risk/reward buying into this stock hopefully for a move back up to 19.

Now what happens if we break this? Well obviously if we break the 200 simple moving average we might find the shorters coming into the market, maybe trying to take advantage of an impulse move down.

So, on both the stocks we've looked at during this CantosCharts session, finding true points really to look for, to wait for either to buy or start selling the stock trying to keep risk/reward in our favour.

So just really to go over our Standard Chartered graph, we can see the stock has fallen sharply but it has come down to that 200 simple moving average. We've got some positive signs on the momentum indicators with the 200 simple moving average. Really, we're concentrating on here because it has found support at this point many times in the past.

Thank you very much for watching CantosCharts. I've been Steven Mayne at Mayne Financial. Hope to see you soon.