Spread Bet Rio Tinto
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To set the scene for trading or spread betting Rio Tinto, here is the chart of price action in recent years, including the Moving Average Convergence/Divergence, and two moving averages, the SMA(60) and SMA (240). First, the longer moving average gives an overall indication of the long term trend. Apart from the problems in 2008 which affected the whole market, you can see that the overall trend has been upwards, as shown by the khaki line.
The shorter moving average, in light blue, has been soundly above the long term, confirming the uptrend, but on the right edge it is coming down, possibly to cross, which may indicate a reversal coming. This has occurred since March and April.
Rio Tinto is a giant mining company, and although quoted on the London Stock Exchange it has big interests in Australia. Iron ore production is steadily increasing, bauxite (for aluminium), molybdenum and coal have jumped, though copper and gold are down, chiefly because of the quality of deposits. There are several factors that have affected the price in recent times.
Firstly, Rio Tinto bought Alcan aluminium group in 2007, and thus incurred a huge debt which it tried to lessen with a share rights issue in the middle of 2009. This may have given rise to the glitch in the uptrend, which nonetheless did re-establish itself boldly. But more recently, you may have read about the bribery and espionage case conducted in China, culminating in a conviction of Rio Tinto employees in March 2010. It is likely that this had a significant impact on the way the company is perceived.
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The other problem that has been in the news is a reluctance on the part of Rio Tinto and other mining companies to carry on with their Australian projects after the government proposed a 40% profit tax in May 2010. It’s thought that this would have been the highest tax on mining companies in the world. Both these factors may have contributed to the slide in price from March to June. In early July the Australian government announced a drastic revision of its proposal, reducing the rate to 30% and limiting it to iron ore and coal production.
Unlike many smaller companies involved in mining, Rio Tinto is large enough to not suffer the huge fluctuations that arise from new mining finds and reserve discoveries. It is active enough for the short term trader to make some profits, as can be seen from the chart above. The MACD is fairly neutral, suggesting that there is no strong force for the price to go up or down, and the short term moving averages are showing a downtrend but with the possibility of a bullish crossing soon.
With a tightening of the Bollinger Bands, it suggests a possible break out move shortly, but it could be either way. Rio Tinto gives a good opportunity for spread betting, leveraging your trade to capture the move, and deserves watching closely to see what way it will break.
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