What The Charts Say About Iron Ore

This story features RIO TINTO LIMITED. For more info SHARE ANALYSIS: RIO

Bottom Line 21/03/13

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Down

Technical Discussion

We normally review Iron Ore every couple of months as the data feed is only weekly and not daily. Yet the metal has been front and centre in the news of late due to the weakness that has recently been witnessed over the past few weeks. As always, lead by the media who are generally insisting that Iron Ore is on the road to doom and significantly lower prices. And obviously this sort of rhetoric then puts ASX stocks such as BHP Billiton ((BHP)), Fortescue Metals ((FMG)) and Rio Tinto ((RIO)) well and truly in the spotlight. Yet is this just another case of media analysts failing to look anywhere beyond the tips of their own noses?

A market goes up they tell us all is well, a market goes down they suddenly switch sides and tell us everything is doom and gloom. Maybe they should stick to selling yoyos !! It can really do your head in if you focus on it . Personally I just prefer to stick to the charts and let price guide the way. And in relation to Iron Ore, from an Elliott Wave perspective, I'm still ok with what is unfolding from a potentially longer term bullish stance. The move up off the lows that we have labelled as a higher degree Wave-(2) or (B) in September last year, unfolded as a 5-wave progression and was nice and impulsive. This is a positive and we've labeled the completion of this move as a Wave-1 or A high at 158.90. Now if we are accurate in our interpretation of where this trend presently sits, we should expect a 50.0% – 61.8% retracement of the whole of the recent move higher. And these numbers come in at 122.80 and  114.28 respectively which has confluence to our major support line circa 117.00. Price presently sits around the 134.00 price area so as you can see, further depth would not only not worry me right at this juncture, it is also to be expected. I'll only red flag this on a convicted move below 114.00.

The probe higher on the wave-v triggered some Type-A bearish divergence and this has now all but fully unwound on this recent bout of weakness. More scope for further depth is there in line with our overall analysis. Yet Iron Ore does have a tendency to reverse immediate trends quite quickly when the divergence indicator makes its way back into this zone. So further depth to this move over the coming weeks will certainly see us more aligned to a reversal rather than anything more sinister. Watch the potential for a reverse head and shoulders pattern to play out here as well. Another bullish pattern that has the potential to back our contrarian view over the coming weeks. So maybe, just maybe, Iron Ore isn't in such a bad state after all !?

Trading Strategy

The ASX stocks mentioned in our review tonight have seen their recent dips correlate perfectly to our chart. So the price ebbs and flows of this market certainly have impact on some of our larger miners who have Iron Ore portfolios. Yet if our analysis proves to be correct, post a little more depth to this move, all 3 of these companies may well be worth keeping on your watch lists in relation to future bullish trading opportunities. As mentioned though, 114.00 is our all important line in the sand on this.
 

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

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