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Mining giant with solid dividend building a base
schizas’ mailbag
Lou Schizas
Special to The Globe and Mail

This article was published more than 9 years ago. Some information may no longer be current.

Hi Lou,

I'm looking to get into Vale. What would be a good entry point if any? Down side risk?

Thanks,

Darren

Hey Darren,

Thanks for the assignment. Vale S.A. is a global mining giant headquartered in Brazil with operations in thirty countries. They are a leader in the production of iron ore and the second largest nickel producer in the world. The company also has interests in the production of fertilizers, manganese, ferro alloys, platinum group metals, and precious metals. The tale of the tape with VALE is that it suffers when the global economy slows down. That has been the case since 2008 as the unwinding of the subprime mortgage debacle has rocked the foundations of the post war economy.

An investigation of the charts will help identify the opportunities and risks associated with this battered giant.

The three-year chart paints a picture with a central theme of lost value. The established downtrend line that has been in place since 2011 has resisted all efforts to sustain a new advance. What is also evident is that the MACD and the RSI have generated lots of buy and sell signals along the decline providing multiple opportunities to trade for profit. Since the beginning of 2014 resistance has formed at $15.00. The short move up that started in June of 2014 at $12.50 is on the verge of retesting the $15.00 resistance level. What is also worth mentioning is the base building that has been the dominant theme in 2014. It is often said that the bigger the base the better the case for an investment.

The MACD and the RSI on the six-month chart have generated a number of buy and sell signals. The lift in June that took the stock from $12.50 to its current trading range looks to have a bit more to give. The retest of resistance at $15.00 is the question that needs an answer. The next earnings announcement is scheduled for July 31, 2014 which demands monitoring.

Vale offers a dividend that yields 5.6 per cent which might justify hunkering down and collecting rent. Finally it appears that the stock has been trading in a range with support at $12.50 and resistance at $15.00. The evidence at hand suggests that you should consider trading the shares in the range. Alternatively if you are looking to accumulate the shares pick away on pullbacks.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.