Iron Ore Chart – Update

Last week, I posted a blog discussing the outlook for iron ore and RIO Tinto. Iron Ore is now breaking down below the double top support outllined in that post.

Spot prices in this commodity are a key driver not only for major resource stocks but also for the Aussie Dollar. They are also widely watched as a predictor of demand in the wider Chinese economy. It’s not an easy chart to access publicly so I’ve posted an update for readers interested in following this situation.

Iron Ore – Daily

Iron Ore 62% Fines - Tianjin Port. Source: Bloomberg

Iron Ore 62% Fines – Tianjin Port. Source: Bloomberg

The break below the red support line at around $145 completes the double top.

This creates the potential for a deeper correction. One possible target for this is around $131. At that level, the projection of the double top pattern height from its low coincides with the 61.8% retracement level of the last major swing up.

The 200 day moving average is not far below this cluster at around $127.

A break below support at $122.80 would start to make this look like more than a minor downward correction. Overlapping below that level could suggest either a correction of the whole move up from the $87 low or (more significantly) that the major downtrend is back underway with a move to new lows in prospect

Implications for other markets

A decline in spot iron ore prices has been widely anticipated.  Mining stocks have fallen in advance of this happening.  Markets appear to be taking the weaker iron ore price in their stride. The rally in the Aussie Dollar this week is an example.

Makets may not get seriously concerned unless spot iron ore overlaps below $120. This would start to place pressure on some of the more bullish long term forecasts and create potential for analysts to begin revising earnings forecasts for resource stocks. It’s also important to remember that not all iron ore is sold on the spot market. There’s still a lot sold under medium term contracts.

In the very short term, we’ve started to see a bit of a rally in copper and other commodities since yesterday. Even if iron ore follows suit it would now take a rally past the previous peak to suggest the downward correction has ended. It’s more likely a rally from here would just be a short term bounce.

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Commodity, Trading and tagged , , , , , , , . Bookmark the permalink.

6 Responses to Iron Ore Chart – Update

  1. George Purvis says:

    Ric, As a keen follower of BHP and RIO how best can one tune into what is happening with the Iron Ore price? How I wish I had been shorting RIO over the last few weeks! Thanks, George

    • Ric Spooner says:

      Hi George,

      I’ve had a bit of a Google around for this and haven’t been able to find anywhere you can get this info regularly on free sites. The index is produced by a private company called Steel Index Ltd and they only provide it to subscribers.

      The spot iron ore market is still very new. No doubt information will become more accessible as derivative products are developed over iron ore. In the meantime it looks a bit of an information gap for private traders. We’ll continue to post info on significant price moves to our blog.

      Regards
      Ric

  2. @JackieTheTrader says:

    Dear Ric, Firstly, thanks for your many interesting tweets on a variety of topics. Also, thanks for retweeting some of my tweets. You may have noticed that yesterday, I provided a correlation chart between AUD/USD and copper. I’d be keen to provide a similar correlation chart betweet ‘iron ore’ and 3 entities: AUD/USD, BHP & RIO. Unfortunately, I don’t have access to any iron ore pricing data, so I can’t do this. Are you in a position to provide me with such a file? If so, I’ll happily provide the correlations I’ve discussed here (or any others that may be of interest to you, for which I have data)?

  3. jpietersz@bigpond.com says:

    HI Ric,

    A much appreciated followup on Iron ore. Wish this chart was ready available!

    Interesting Iron Ore has conformed double top. As both Rio and FMG are at fib cluster zone. 78.6, 61.8 and 127.2. This happens to coincide with 21 day correction period. 21 Day reversal appear common theme.

    This appears to contradict the Iron Ore chart.

    Contradiction appears to be a common theme in the market at the moment.

    Cheers
    Julius

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s