Mining sector bounces

A surge for the FTSE mining sector in mid-February carried the index into overbought territory, but since then a downward trend has come into play.

The mining sector is enjoying another positive day this morning, but it is hard to become too optimistic about the near-term outlook for the sector.

In mid-2013, the broader raw materials sector hit its lowest level since the 2009 rally. Since then it has made good progress, gaining around 21% since the beginning of last July. However, a failure to hold above the 18,000 level has seen the sector give ground back in rapid fashion, suffering its steepest falls since November 2013.

Now we see a situation where the sector is caught between two trendlines: one ascending and one descending. The former runs from the July 2013 lows, and saw bounces in December 2013 and January 2013. Meanwhile, the latter runs from the high levels we saw back in December 2010.

Chinese economic growth has become something of a concern; while the official growth target has been kept unchanged at 7.5%, this still represents a lower growth rate than was seen a few years ago. The lack of positive sentiment surrounding the sector suggests that we will see a move back towards the lows around 16,200. On an hourly chart, the 50- and 100-period moving averages are pointing lower, with the former having just crossed below the 200-period. 

Mining sector chart

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