Avoid This Mining Stock Next Month

Rio Tinto's 40-day moving average has had bearish implications in the past

Copper prices have taken a backseat to gold amid the global COVID-19 pandemic. That hasn't stopped mining stockRio Tinto plc (ADR) (NYSE:RIO) however, from joining in on the broad-market rally. RIO is up 31% since its March 23 bottom of $35.35, but this rally has taken the copper name to a trendline that, if history is any indicator, could mean trouble going forward.

More specifically, Rio Tinto stock has climbed all the way up to within one standard deviation of its 40-day moving average. Per a study from Schaeffer's Senior Quantitative Analyst Rocky White, there has been two similar run-ups to this trendline in the last three years. The study indicates that one month after this signal, RIO was lower by 6%, 100% of the time.

A similar move from its current perch at $46.11 would put the mining concern back down around $43, a level of support that was in place back in late 2018. Year-to-date, RIO is down 22%. It's no surprise then, that 70% of the analysts in coverage rate the equity a "hold" or worse, or that its consensus 12-month price target of $48.62 is a slim 5% premium to its today's price action.

In the options pits, puts are all the rage. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RIO's 10-day put/call volume ratio of 2.27 sits in the elevated 74th percentile of its annual range, meaning options players have been reaching for long puts at a quicker-than-usual clip.

Those purchasing short-term options are finding relatively rich premiums at the moment, per the stock's 30-day at-the-money implied volatility (IV) of 50.3%, which registers in the 90th annual percentile. That's not too surprising though, considering the security's 60-day historical volatility (HV) of 72.4%, registers in the 100th annual percentile.