No Joy For Iron Ore Stocks, Yet

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

The Bottom Line 24/09/14

Daily Trend: N/A
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 76.10 / 59.10
Resistance Levels: 86.70 / 98.00 / 117.00

Technical Discussion

Our key 86.70 support point has broken down and this is a serious bearish development. The other two markets we have covered tonight are also interrelated to the Iron Ore Market, with concerns of China economically slowing down affecting price, added to global surpluses, with price charts in the AUD and Iron Ore often correlating. Price has now slumped to below 80.00 a metric tonne for the first time in 5 years with stocks such as BHP Billiton ((BHP)), Rio Tinto ((RIO)) and Fortescue Metals ((FMG)) in Australia clearly feeling the effects. Yet its another market where bearish sentiment is at a peak so certainly something to be aware of in relation to price locking in lows well ahead of the herd. Iron Ore is an important market on the Global stage. Yet outside our regular reviews on the commodity, watch closely the charts of our favorite ASX Iron Ore related companies, as they are likely to reflect when lows are getting close to hand. Clearly this bout of weakness needs to run its course first though. 

Reasons to revert to bearish from neutral:
→ high stockpiles at Chinese ports
→ Chinese demand not matching output, be it improvement projected in some quarters
→ descending triangle has broken down and lost symmetry
→ the break below 86.70 is a major bearish red flag

Well oversold on the weekly and monthly charts, price has certainly taken a battering. Levels have recently tagged 79.80 with the next line of support not till 76.10. Below this price point will only add to further capitulation so it really is important that buyers come in and start supporting at 76.10 or above. Old support circa 86.70 will now revert to resistance and we wont have anything positive to say on this until this price point can be worked back above, with the next line of resistance at 117.00 also being overcome. Our longer term bullish aspirations on Iron Ore have taken somewhat of a battering, yet if the rhetoric on China's economy takes a turn for the better over the coming months, then expect a supportive floor to evolve. As mentioned though, 76.10 is now critical. If price slips below here then a recovery, if and when it arrives, is going to be a very labored process. The Bears are clearly in control.

Trading Strategy

We don't trade Iron Ore but there are a number of high profile Iron Ore stocks such as RIO, BHP, FMG and Atlas Iron ((AGO)) that we commonly talk about to keep a close eye on. And although they have come close to triggering upside moves, they have failed to do so to this point in time. BHP recently just missed our bullish trigger above $40.00, and quickly turned bearish on this failing to tag $34.17 in Wednesday's trade. So around a 15% drop off the recent highs. Yet as alluded to in tonight's review, keep an eye on these stocks as a guide as to when low points could be nearing. In yesterdays trading BHP tagged an intraday low of $34.17 yet closed back towards the days high on strong volume. So definitely some speculative buying has started to come in at these lower levels. We are not saying a low has been locked in here, yet we are saying to keep your eyes on the ball. Price charts will tell you what is going on way earlier than any news item!

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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