Further Upside For Iron Ore?

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

Bottom Line 28/04/15

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

‘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.’ Since our last review Atlas Iron Ore ((AGO)) went into voluntary suspension and in response to lower Iron Ore prices is now doing a full Operational and Financial review of the business. Yet has sanity now prevailed with last week BHP Billiton ((BHP)) informing the market that it is about to make significant reductions to its capital expenditures which will reduce the volume of Iron Ore it produces over the next several years. A decision that is likely to start reducing the over supply in the market place, which should finally see prices supported and margins therefore improve for Producers. Whether this is all too late for businesses such as AGO remains to be seen, yet Iron Ore prices have certainly responded positively to the news. It’s now just a matter of seeing whether these initial moves can stick ?

Reasons to be bearish (some optimism returns above 65.10) :
? high stockpiles at Chinese ports
? Chinese demand not matching output
? price continues to sustain bearish downside momentum
? change of policy by BHP to start reducing output now being closely watched

From the recent lows at 46.70 price has very quickly bounced to 58.70 which is a solid 25% + rise. In our last review we talked about the spike down lower to 46.70 out of the falling wedge pattern as possibly being a fake out to the downside, and now price may be lining itself up to reflect exactly that. In fact the recent surge higher has now broken above the prevailing wedge pattern which is an early signal for a bullish move higher. Potentially even triggering a major change in trend if the move can sustain. If it does then we will be looking for a staged move north where some important milestones may possibly be achieved . The first is a break above 65.10, followed by 71.20 and then 83.10. There are more of course yet these are the initial key levels that will suggest that a major low point in Iron Ore has finally been achieved.

Trading Strategy

Fortescue Metals ((FMG)), BHP and Rio Tinto ((RIO)) should now be well and truly on your watch lists. Iron Ore is definitely on our radar now in regards to a potential turnaround.    

 

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