Rio Tinto Surges 4.16% on Bullish Engulfing Pattern, Eyes $65.34 Support and $68.35 Resistance

Rio Tinto (RIO) Technical Analysis

Rio Tinto closed the most recent session with a 4.16% gain, reflecting strong bullish momentum. The price action suggests a potential short-term reversal or continuation depending on the interplay of key indicators and volume dynamics.

Candlestick Theory

The recent 4.16% rally forms a bullish engulfing pattern, with the closing price surpassing prior resistance at $67.57. Key support levels are identified at $65.34 (October 10 low) and $63.12 (October 7 low), while resistance is clustered near $68.35 (October 13 high). A breakdown below $65.34 could trigger a retest of the 63.12 level, while a breakout above $68.35 may indicate further upside.

Moving Average Theory

The 50-day moving average (approx. $62.50) currently supports the price, while the 100-day and 200-day averages (around $60.50 and $59.00, respectively) lag behind. This suggests a short-term uptrend but a longer-term consolidation phase. The convergence of the 50-day MA with the price may signal a potential breakout if the stock sustains above $67.50.

MACD & KDJ Indicators

The MACD histogram turned positive on October 13, confirming bullish momentum, but the KDJ indicator shows overbought conditions (K at 85, D at 75), raising caution about near-term exhaustion. While the MACD golden cross on October 13 suggests a buy signal, the KDJ divergence implies a possible pullback before further gains.

Bollinger Bands

Volatility has expanded, with the price reaching the upper band on October 13. This indicates heightened trading pressure. A sustained close above $68.35 could push the bands higher, but a retest of the $65.34 support level is likely if volatility contracts.

Volume-Price Relationship

Trading volume surged to 4.65 million on October 13, validating the price increase. However, volume has been mixed in preceding sessions, with lower volumes during declines. Sustained volume above 4 million may be required to confirm the continuation of the uptrend.

Relative Strength Index (RSI)

The RSI stands at 68.16, nearing overbought territory (70), suggesting a potential correction. A close above 70 would confirm overbought conditions, but caution is warranted as the RSI has shown divergence from price in recent pullbacks (e.g., October 10).

Fibonacci Retracement

Key Fibonacci levels between the October 7 low ($63.12) and October 13 high ($68.35) include 38.2% at $66.50 and 61.8% at $65.50. A retest of the 61.8% level may act as a critical support zone, while a break above 38.2% could target the $68.35 resistance.

Backtest Hypothesis

The backtest of a MACD golden cross strategy with a 20-day holding period yielded a -7.88% return, underperforming the benchmark by 54.93%. This poor performance highlights the risks of relying solely on MACD signals in a volatile environment. The negative Sharpe ratio (-0.10) and 22.19% volatility underscore the strategy’s inefficiency, likely due to frequent false signals and lack of confluence with other indicators like RSI and volume. A refined approach incorporating Fibonacci retracement levels and volume validation might improve outcomes.