Positive Signs For Iron Ore

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

Bottom Line 15/07/14

Weekly Trend: Down
Monthly Trend: Down
Support Levels: 86.70 / 76.10
Resistance Levels: 117.00 / 130.00 / 142.80

Technical Discussion

It is interesting to note that over the past week, Investors have been strongly buying up Bonds sold by Vale SA. A company based in Brazil yet who is the worlds largest Iron Ore Producer. What this means in essence is that there is speculation that Iron Ore's longer term weakness may soon reverse which is a likely ingredient in also reversing the slump in share price in Vale SA. In mid June Iron Ore fell to $89 a tonne yet over the past 4 weeks or so has added 10% off these lows. The big question now is, do we finally have a major low locked into place ? The answer is likely to lay in the hands of China's economy making a strong recovery in the second half of 2014. Exactly the type of catalyst the metal is now looking for to start reversing this bearish rout.

Reasons to remain cautious:
→ high stockpiles at Chinese ports
→ Chinese demand not matching output, be it improvement is now projected
→ descending triangle pattern needs to maintain symmetry
→ a break below 86.70 a major bearish red flag

 Well, here we are. I'd like to think the recent 89.00 low is the bottom now with the 10% rise over the past 4 weeks or so, the start of a sustained move higher.  Too early to know for sure be it the larger descending triangle we have been monitoring has harbored buyers around the recent lows. Usually these patterns require 5 internal swings before being completed, and we now have 3 clear cut swings in place. If price can over the coming weeks head back up towards the lowering line of resistance around 130.00 as a 4th swing, deflect off here within a 5th swing and then break out higher above 130.00, the Bull's will be back in control. Plenty of work still to do so for now we just take things one step at a time. 

Trading Strategy

We don't trade this contract yet it is certainly an important one in relation to the performance of big Iron Ore plays on the ASX such as BHP Billiton ((BHP)) , Rio Tinto ((RIO)) and Fortescue Metals ((FMG)). Interestingly, all are now looking to have the potential to start swinging higher. So long as 86.70 or above can hold and start to bringing buyers out of the wood work, we will continue to remain cautiously optimistic. BHP in particular will start to look quite compelling from a bullish perspective above 40.00. Keep an eye on all three !
 

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