Although the market has bounced back from yesterday’s decline and is up 0.3% in morning trade, the Fortescue Metals Group Limited (ASX: FMG) share price and the Atlas Iron Limited (ASX: AGO) share price have sunk deep into the red.
At the time of writing the shares of the two leading iron producers are down 2.5% and 5%, respectively.
Why have they sunk lower?
Overnight the spot iron ore price continued to slide lower and hit a two-week low.
According to Metal Bulletin the spot price of the benchmark 62% fines tumbled 1% to US$76.36 a tonne.
The 58% fines, which is what Fortescue produces, performed far worse than the benchmark grade. The lower grade iron ore fell 2.2% to US$48.97 a tonne last night.
Furthermore, with iron ore futures also on the decline, it appears as though the spot price could drift even lower on Wednesday.
This latest decline appears to be related to concerns over pricing in steel markets. After all, earlier this month the China Iron and Steel Association (CISA) warned that prices for steel futures were not being driven by increased demand or supply issues.
According to Reuters, the CISA felt traders were being misled in regards to capacity cuts and its environmental policies, causing steel prices to rise unnecessarily.
Should steel prices come falling down then it seems inevitable that iron ore will as well.
Should you buy the dip?
While I think Fortescue is a high quality miner with world class operations, I’d rather wait for a better entry point.
Should iron ore prices fall as low as many are predicting, then I feel it is very likely that Fortescue’s share price will be dragged down as well. Once prices have bottomed then I would be first in the queue to invest.
However, if you think iron ore can still remain at this level for the foreseeable future then Fortescue and its dividend could be a great option in the resources sector.
Overall, the bias in prices is: Upwards.
Short term: Prices are moving.
Intermediate term: Prices are trending.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 5.56.
The projected upper bound is: 6.40.
The projected lower bound is: 5.68.
The projected closing price is: 6.04.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 3 black candles for a net of 3 white candles. During the past 50 bars, there have been 21 white candles and 25 black candles for a net of 4 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 56.9444. This is not an overbought or oversold reading. The last signal was a sell 2 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 61.87. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 82 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 78. This is not a topping or bottoming area. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 6 period(s) ago.
Rex Takasugi – TD Profile
FORTESCUE FPO closed up 0.140 at 6.010. Volume was 18% above average (neutral) and Bollinger Bands were 19% narrower than normal.
Open High Low Close Volume
5.910 6.070 5.900 6.010 25,310,570
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 5.89 5.46 5.80
Volatility: 43 42 53
Volume: 20,192,524 19,904,602 20,508,076
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FORTESCUE FPO is currently 3.7% above its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of FMG.AX at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on FMG.AX and have had this outlook for the last 7 periods. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.
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