Technicals | Apr 06 2017
This story features FORTESCUE METALS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: FMG
Bottom Line 05/04/17
Daily Trend: N/A
Weekly Trend: Up
Monthly Trend: Neutral
Support Levels: 76.70 / 70.50 / 68.70
Resistance Levels: 95.00 / 111.00 / 119.40
''The technicals remain positive overall yet a little mixed more immediately so lets take a closer look.' A little mixed indeed with price inflecting off the lowering line of resistance right on cue. Fundamentally the drop off the recent $95.00 highs has been attributed to negative sentiment about inventories in China where there are concerns that ports are now at near capacity. These types of reports though have been contradicted by analysts such as Credit Suisse who have stated that inventories are not high at all and in fact depleting. Getting accurate information out of China is always full of controversy. There are also concerns about China's central banks looking to take the heat out of the property market over there by tightening monetary policy which could affect Iron Ore demand as well, at least over the short to medium term.
From a political perspective, China's President Xi Jinping is meeting with President Trump this week in the U.S where currency valuation and manipulation along with international trade practices, are likely to take centre stage. Outside all of this noise, technically we continue to like what we see evolving on the price chart, yet there are some numbers we need to be cognizant of moving forward, that if broken below will start to take the shine off our more longer term outlook. Lets take a look.
Reasons to be bullish (above 86.70) :
→ Chinese demand potentially now on the improve
→ recent price action positive yet bears will still be monitored below 86.70
→ relentless production by the majors still in force yet being absorbed
86.70 has always been our line in the sand in regards to whether bullish intent within price action was going to be seen as genuine or not. Price did break above here and head towards 95.00 recently yet has since dropped around 16% to tag 79.80 this week. Only a drop below 70.00 though will see some chinks in the Armour start to develop in regards to our longer term bullish analysis. As readers know from our past reviews, price inflecting right where it did on the upper boundaries of the lowering channel was always going to be high probability and especially with our labelled wave-(iii) or (c) starting to look quite stretched, with our weekly divergence indicator also strongly back into an overbought position. The divergence indicator has now unwound though back to almost oversold, and if this is a wave-(iv) now unfolding, then the typical 38.2% retracement measures in at 77.07. This number also has confluence with the wave-iv of a lesser degree which is where higher degree wave-(iv)'s uncannily tend to head towards.
There is a chance that the move we've been witnessing since the major 2015 lows were locked into place is only (a)-(b)-(c) corrective in nature, yet we do like that the wave-(iii) has extended higher in typical wave-(iii) fashion, so for now we are going to continue to look for a 5-wave pattern evolving which in a nut shell means higher prices in the second half of 2017. The breakout of the longer term lowering channel will be exciting as the channel has been in place now for almost 7 years. So any move that breaks above $95.00 from here and sticks will certainly be a bullish development moving forward. For now though all there is to do is observe the immediate breather, see if price action can continue to remain robust throughout the process, then stay attuned to a major breakout building over the coming months. Our analysis only weakens below 70.00.
Naturally enough ASX related stocks such as Fortescue Metals ((FMG)), Rio Tinto ((RIO)) and BHP Billiton ((BHP)) have all been performing solidly over the past 12 months yet when the Iron Ore chart weakens, price charts of ASX related stocks also go into consolidation mode. As stated in our technical section tonight, we need price to now tell us whether the move off the 2015 lows is corrective or more impulsive in nature. We've already aligned ourselves to the latter which if correct will mean low risk entries in our big 3 Iron Ore stocks could now be evolving right before our eyes. Yet if our Iron Ore chart proves that this upside move has only been corrective, we may have some medium term tops in place now which could stay in place for some time to come. FMG in particular has recently tagged a double top stemming back to January 2011, so continued inflection off the $7.34 price point could be the catalyst for an upcoming decent retracement. We will continue to monitor.
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