No Respite Seen For Iron Ore

This story features FORTESCUE LIMITED, and other companies. For more info SHARE ANALYSIS: FMG

Bottom Line 07/04/15

Daily Trend: N/A
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 45.00 / 40.00 / 35.00
Resistance Levels: 65.10 / 71.20 / 83.10 / 86.70

Technical Discussion

‘… BHP Billiton and RIO Tinto continue to increase production in relentless fashion which is likely to add more pressure on Iron Ore prices, whilst driving the smaller high cost producers out of business. There in lies the motive perhaps ?’  Since our last review Fortescue Metals ((FMG)) Chairman Andrew Forest has even started to question Rio Tinto ((RIO)) and BHP Billiton ((BHP)) in regards to their relentless Iron Ore output. Yet BHP has simply responded with the rhetoric that if they reduce output then someone else will pick up the slack. Everyone has their own spin of course with FMG now feeling the pinch, and with low cost producers such as BHP and RIO happy spectators to the world of hurt that higher cost and smaller producers are now feeling. With Iron Ore trading at record lows down near 46.70 a tonne as of this week, it really does look as though it is all going to end in ‘tears’ for a majority of Iron Ore producers if it hasn’t already. Still no signs of a low locking in here !

Reasons to be bearish :
? high stockpiles at Chinese ports
? Chinese demand not matching output
? price continues to sustain bearish downside momentum
? output via RIO and BHP relentless

Sometimes there are price charts that you just can’t find anything positive to say about, and this is one of them. In our last review we spoke of the bullish potential associated with falling wedge patterns if they are able to breakout to this upside, yet this one has actually broken to the downside, and strongly ! As price is now sitting right on support within the lowering channel, if it continues to head south from here below 46.70, then further capitulation is going to be witnessed. Basically buyer support is now required immediately, with only a move back above 65.10 taking the chart marginally out of intensive care ! We can’t even revert to a neutral stance until 86.70 old support now resistance can be broken back above. We are not holding our breath !

Trading Strategy

BHP and RIO prices are continuing to be heavily weighed by what is going on here. Then we have FMG which is trading at 6 year lows, and smaller producers like Atlas Iron ((AGO)) trading at all time lows [and subsequently now in a voluntary trading halt – Ed]. AGO was trading at $1.00 only a year ago yet is now languishing at 12c,  and as of today has gone into voluntary suspension announcing the need to review its total operations. It’s not looking good ! Stay well clear of trading Iron Ore Companies at the moment outside setups that align selling on strength.
 

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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