Interactive Investor

Chart of the week: Fresnillo slump could be chance to buy 

4th May 2021 11:48

John Burford from interactive investor

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This chartist thinks he's spotted an opportunity after shares in the world’s largest silver producer crashed to a 10-month low.

Fresnillo is poised to advance

I have been covering FTSE 100 silver mining share Fresnillo (LSE:FRES) on and off for many months, and I believe it is now poised to make another substantial leg up following a deep six-month correction.

Source: interactive investor. Past performance is not a guide to future performance.

This share usually follows closely the silver price. Curiously, that has been advancing during April, but Fresnillo shares have continued their decline. That means something has to give and, with the shares having just made a precise Fibonacci 62% retrace of the previous wave (that I am calling wave 1), odds favour an imminent advance in the shares.

I believe the downside risk is low since the Fibonacci 62% retrace is usually the extent of most corrections – if the uptrend is in abeyance.

And if my wave labels are correct, I expect to see a very strong advance in wave 3. So, the big test is to see that sharp advance from here over the next few days/weeks. If it does not materialise, we could possibly see one more dip to the £6.75 region.

This is the Fibonacci 76% level which would be the fail-safe for my bull case. On the daily chart (not shown), there is a building momentum divergence and chart support just under the current £8.60.

But I believe odds favour the current £8.25 low to hold firm. My first major price target is the £13.75 wave 1 high.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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