BHP share price plunges 6.30% on credit downgrade fears

Summary:

The BHP share price opened sharply lower this morning following the news that plans to sell its energy assets could cause its credit rating to drop.

The BHP share price opened sharply lower this morning following the news that plans to sell its energy assets could cause its credit rating to drop. Rating agency S&P Global has warned the mining giant that selling its oil and gas business will make it even more reliant on volatile iron ore prices. Furthermore, they cautioned this could lead to them lowering BHP’s credit rating down to BBB+, its lowest ever score.

BHP Group plc (LON: BHP) has come under considerable pressure recently, dropping 10% in the last three days and almost 17% from the August high. This marks a 180-degree turnaround from the optimism that followed last month’s stellar earnings that revealed a record-breaking profit. The market initially cheered the decision to sell its energy assets to Woodside petroleum ltd, sending the BHP share price higher by almost 10%. However, this morning it’s a different story altogether.

BHP Group Price Forecast

The daily chart shows BHP has broken down below the 50, 100 and, more importantly, the 200-day moving averages. The slide below the 200 DMA at 2,109p is a significant negative development, potentially leading to follow-through selling. If that proves true, the next support level is found at June’s 1,980p low. Following that, a drop to the August 2020 high at 1,855p cannot be ruled out.

However, the last time BHP dropped below the 200 DMA, it recovered the next day. This was the catalyst for a 26% rally to the 2,505p all-time high in August. The negative outlook remains for as long as the BHP share price is below the 200 DMA. Therefore, a close above 2,109p would invalidate the bearish view. On that basis, the next few days could set the tone for some time to come.