No Bottom In Sight For Iron Ore

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

Bottom Line 08/07/15

Daily Trend: N/A
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 46.70 / 40.00 / 35.00
Resistance Levels: 65.40 / 71.20 / 83.10 / 86.70

Technical Discussion

Iron Ore markets are still clearly in all sorts of trouble. Price has once again dropped back below 50.00 USD a tonne, and post some optimism about the recent breakout higher, this has now proven a false dawn with the best case scenario now looking for some form of double bottom to play out back down towards 46.70. We have no problems with retracements, yet when they act aggressive and impulsive to the downside, then it does tend to flag a resumption of the prevailing trend which in this case remains well and truly to the downside. Price has now dropped 12% in the last two weeks.

Reasons to be bearish (some optimism returns above 65.40) :
→ high stockpiles at Chinese ports
→ Chinese demand not matching output yet still surprisingly robust
→ price continues to sustain bearish downside momentum
→ change of policy by BHP to start reducing output now being closely watched

Things are back to looking dire again here post the breakout higher from the closely watched falling wedge pattern. This breakout can now be deemed false, especially with the speed at which price has dropped off the recent 65.40 highs. The double bottom scenario via a move back down towards 46.70 is really the best case scenario from here, with any break below starting to see a lack of historical support lines. What this means is that if we thought Iron Ore had potentially bottomed, then we need to think again if 46.70 fails to hold. Yet if the double bottom does hold, and the weekly divergence indicator unwinds back to oversold to alleviate any potential bearish divergence pressures down the track, then the bullish trigger for this pattern will be above 65.40. Such a move will have some solid upside price targets attached to it as well. Right here though, levels remains in a very precarious position and under threat of further capitulation if buyers fail to appear above 46.70.

Editor's note: Last night iron ore fell 11% to US$44.10/t.

Trading Strategy

The ASX majors such as BHP Billiton ((BHP)), Rio Tinto ((RIO)) and Fortescue Metals ((FMG)) are all looking very fragile once again, and we especially have serious concerns about debt laden pure Iron Ore plays like FMG if prices continue to head on lower. In fact Fortescue Metals now sits at six and a half year lows with the downtrend extremely powerful and unabated. The stock certainly looks like it has a long hard road ahead towards recovery, if it can recover. Overall there is really no point being involved from a trading perspective with ASX Iron Ore stocks, outside low risk shorting opportunities.
 

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