Iron Ore: Breather Due

Technicals | Jul 10 2019

Bottom Line 09/07/19

Daily Trend: N/A
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 111.00 (?) / 95.00 / 78.60
Resistance Levels: 111.00 (?) / 142.80

Technical Discussion

'Seasonal demand is now in play, with construction activity typically picking up in China in May and June when the weather is more favorable.' Since our last review, seasonality came into play right on cue and it obviously didn't disappoint. As you can see on our price chart. Strong trends are very difficult to stop so at the moment technically everything continues to look very solid, as do the fundamentals. And there continues to be expectations of strong demand even though the latest port stocks data in China showed an easing in supply tightness.  Many though are expecting further upside in Government projects in Q3, particularly in ASEAN countries. So for the rest of 2019 as a minimum, the fundamentals are continuing to look pretty solid on the metal.

Reasons to be bullish above 78.60 then 111.00 :
? Chinese demand remaining overall consistent
? relentless production by the majors still in force
? bullish coiling process broke out higher
? larger equality move target circa 121.00 now attained
? potential for even higher to be achieved via Wave-(C) 5-wave move

'Since the bullish pattern breakout Iron Ore has gone from almost failing technically to the downside, to finally backing our analysis with higher levels still on the horizon. We are continuing with our longer term prognosis on the metal which remains fixated on the larger (A)-(B)-(C) equality move eventually tagging 121.00.' After all this time, and with a great deal of patience being exercised, price has finally achieved our bigger picture target, with it last week tagging 123.19. The move above resistance circa 111.00 has only just  occurred, so now we need to see if it can revert to a strong line of support. Last week we started off with a gap higher to target, yet it closed out the week on its lows. So basis this and the fact that Iron Ore likes fill its gaps, some weakness and consolidation from here would not be out of the question. And it will be what this weakness looks like on the price chart that will decide whether we have more upside to go in this on the immediate bullish cycle.

For example, if price from here can fill the gap at 112.90 and then continue to consolidate for a number of weeks in and around resistance circa 111.00, without weakening too deep, then this would be defined as a potentially bullish situation. Even better if the process is able to take our weekly divergence indicator back into an over sold position. Another interesting point to note from an Elliott wave perspective in regards to this immediate Wave-(C), is that Wave-(C)'s generally unfold as 5-wave patterns. And thus far only three clearly defined waves have evolved post the Wave-(B) triangle breakout. So any shallow consolidation from here would certainly fit the bill as being a wave-iv, with the final wave-v to even higher levels, yet to take place. Always great to see when price action follows the script !

Trading Strategy

BHP, RIO and FMG are the stocks we have constantly recommended subscribers to look at in regards to trading opportunities as we continued to back our bullish rhetoric on the Iron Ore price chart. And true to form all three have performed brilliantly throughout Iron Ore's bullish move north. As per the analysis in our technical section though, a breather in Iron Ore could now be close to hand which means Iron Ore related stocks may also be in for a well deserved breather over the coming weeks. As mentioned though the potential for even higher prices being achieved later on in the year is still possible if any pullbacks from here remain shallow. So for now there is really no need to get overly aggressive with stops whilst the Iron Ore chart continues to look so robust. Watching closely how 111.00 handles any upcoming retests !

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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