A solid mining sector rally has paused for breath

Glencore shares are consolidating after a strong start to 2016. Where will they head next? While Chinese economic growth and the strength of the US Dollar have surely been the major drivers for the mining sector as a whole, it's things like deleveraging and divesting that are telling  us just which stocks within the sector might out- or under-perform.

In March we saw Glencore's blue chip peer Anglo American announce it would reduce its portfolio of offerings from 9 products to just 3 - Gold, Diamonds and Copper. That's all well and good, but it also means that Anglo American must sell those things it no longer wants. Of course they happen to be the things that virtually no one wants!

Deleveraging or repositioning?

Deleveraging  in the mining sector continues in April with Glencore finding a buyer for a 40% stake in its agricultural business in the Canada Pension Plan Investment Board (CPPIB). No such luck as yet for Anglo American. The fact that Glencore has actually found a buyer for its wares should boost bullish sentiment, but a look at the details throws up something interesting: Glencore is actually intending to use the money from the sale to expand its agricultural business!

So the company is looking to re-position with this particular move. It's not a deleveraging move as such, and may even be seen as taking an unnecessary risk. Should Glencore and the other miners be sitting tight right now, rather than aggressively trying to trade their way out of the commodity downturn?

Overall though, it's known that Glencore is on track to meet its debt reduction targets, so this could equally be a sign that the confident miner and commodity trader is looking onwards and upwards.

Will this be a boon for the bulls or the bears?

GLEN; 4-yr, weekly

GLEN; 9-month, daily

Technical analysis

Both the long term and short term chart show recent weakness in Glencore shares. This intensified a little following the announcement of the sale on 6 April, suggesting that investors had seen the announcement for what it was - mere repositioning rather than full on divestment. Share price weakness could also be due to profit taking after such a strong start to 2016 and amid resurfacing concerns about global growth.

There's still potential for this to be consolidation ahead of another leg up though. The outlook for US monetary policy seems likely to remain dovish, despite the odd dissenting Fed official, such that the USD should continue to weaken in the short term. This gives buoyancy to commodity prices.

Shares in Glencore are currently 120% up from the lows of sept 2015 and a further 55% upside would see them return to their 12-month highs. Shorter term support lies at 130p and the 50-day moving average slightly below. A break down below both of these would be a bearish signal and could see Glencore shares head back towards 100p. Bulls will look for a bounce and return to at least 171p before placing their bets.

Will shares in Glencore (GLEN) break back up towards the highs of 320p, or pull back towards the lows of 66p?

How can you take advantage of these potentially attractive share price moves?

Whether you see UK stocks going up or down in Q2 2016 or indeed for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

Buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see purple box above left), while the same exposure via a CFD requires about £500 plus commission (see green boxes above right). If a trader invests in British Land, one would assume she believes the share price is likely to move in her favour. After considering the ‘worst case scenario’ and assigning funds to cover it,  the trader may conclude there’s little point in exposing the full £10,000  to the BLND shares - some of that capital could be put to good use elsewhere in the markets.

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure.

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What’s your view?

Think shares will rise? Take a long position by buying (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios click here.

How Accendo Markets can help you

We won’t tell you what to do - it’s your call whether you buy or sell. Our aim is to provide the help you need, if you need it. We’ll highlight opportunities which may be profitable to you, the investor, and assist you in making your own trading decisions. Our approach focuses on these 3 elements:

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Our unique, award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. Just imagine how you’ll feel when you’re confident enough to make you own investment and trading decisions, rather than blindly following those of an expensive advisory broker who really has no better chance of calling the market than you anyway.

Before taking a position in the Index or Stocks, be sure to contact Accendo for…

• Updates - How does the index or your preferred stock look in terms of investor sentiment? News and broker updates can emerge daily affecting share prices. Optimism can switch to pessimism in the blink of an eye depending on what’s going on around the world.
• How to use CFDs and Spread Bets to maximise your profit potential.
• How to use the tools available to minimise the risk involved