Fortescue Shaping For A Run

This story features FORTESCUE LIMITED. For more info SHARE ANALYSIS: FMG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bottom Line 05/11/13

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

Technical Discussion

There were several positives to take away from the chart of Fortescue Metals ((FMG)) during our last review with price action looking impulsive in nature from the June low.  Not only that, but price had just broken up through the diagonal line of resistance which of course then becomes support.  And finally the rising channel was continuing to contain price very nicely indeed although the upper boundary was briefly penetrated recently.  The reason we weren’t keen to chase the stock higher was because a gap that had been left a few days prior.  And as a general rule of thumb this company doesn’t tend to leave gaps meaning a rotation down to fill it would have been the ideal situation.  Price did start to head down toward those lower levels but buyers have stepped up over the past three sessions so I am not overly convinced the gap is going to be filled.  Either way, there is no reason why the trend over the past few months can’t continue with plenty of upside still available.  It would take a break down through diagonal support to move us back to a neutral stance and although feasible it’s not looking likely with the information at hand.

We haven’t seen a clean sustainable trend like this in Fortescue for many years which in itself is always reason to sit up and take notice.  Taking a look at the wave structures shows that waves-iii and-iv are now likely in position with the final leg higher at this degree of trend in its early stages.  Wave-iii, as usual proved to be an extension which often results in the first and final legs being of similar length.  Should this be the case here then the target as annotated should be the next port of call as an absolute minimum.  Rejection at those higher levels could result in a longer pause for breath or even a 3-wave corrective movement lower though there is no point speculating on that at this juncture.  For now all we need to know is that the trend remains strong, resistance has been overcome and buyers have been scrambling to buy at current levels which is about as good as it gets.  My only slight concern over the short term is that there is the potential for Type-A bearish divergence to trigger.  If the recent pivot high is exceeded then it becomes a realistic possibility and therefore needs to be watched carefully.  It wouldn’t alter our longer term bullish outlook but it would mean a little time is likely going to be required before the target is met.

Trading Strategy

We often look to our SaR indicator as a trigger mechanism having just seen a 3-leg retracement which is exactly what’s transpired here.  The indicator currently sits at $5.58 meaning a close above that level would be reason to jump on if you like the look of the company.  Just be aware of the possible divergence though.  The initial stop would need to be placed beneath the prior pivot low which at this juncture is the low of wave-iv though this could change over the coming days.  So the risk/reward isn’t enticing enough to make a formal recommendation at this stage though FMG could well find itself in the position status page with the likes of BHP and RIO shortly.
 

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).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms