BHP - FUNCHARTS: Should we buy the dip?Note: Funcharts are interesting charts I have found that offer a potentially unique perspective on a stock. Sometimes I’ll throw something out there that you might find controversial or wrong headed. If that’s the case your 2 cents worth is most welcome.
BHP has sure been belted, but should we catch a falling knife?
- Let's take a basic look at BHP using a very short term strategy. It involves using a strategy called Supertrend Strategy with a 3 period ATR input and an ATR length of 1.5 times.
- Firstly, I've flipped it upside down, so we get a buy signal when the trend changes to down and a sell signal when the trend changes to UP
- Now, next step, Applying this strategy to BHP, take a look at the performance report for Long Trades and Short Trades using the Performance report TAB. Long Trades Buy the Dip , Short Trades Sell the Rally
- Looking at Long Trades, 66% of the time it was profitable to Buy a short term dip on BHP and wait for the trend to change back to up, after which you exited the long position. The profit fact was 1.77. No stop was used in the analysis.
- It was also marginally profitable to sell short term uptrends in BHP, meaning trend of less than 30 days didn't persist all that often.
- What's the verdict? Buying short term weakness in BHP and selling short term strength has made money in the past. BHP is typically a very choppy stock.
I hear what you're saying, you'd like to know if buying the current dip we are in will result in a profit? Based on this analysis BHP will usually stage some sort of rally in a downtrend and you would have make money 66% of the time historically. But looking at external analysis I'm not overly confident just yet.
When I'd like to get in. Take a look at the blue histogram on the chart, if it goes below -10, I'd expect the odds to be pretty good for a rally of at least a few days, if not more. That means any further (significant) downside could be an opportunity for a countertrend mean reversion play. It'll be a day where there is blood on the streets for BHP.
