Stocks to watch closely for a reversal.
Iron Ore Price Crash
Iron Ore is a key commodity that drives FMG and RIO stocks price up or down, BHP is further diversified into other commodities as well, however, BHP also takes big hit to the downside or upside depending on Iron Ore price movement.
To invest or trade these stock it is first important to understand what are the commodities they are exposed to, then analyse the actual commodity price movement and its trend.
At moment the two key facts that have been influencing this Iron Ore price crash is the Chinese policy to reduce the price of the commodity.
China has recently been cutting the steel output and even taking more drastic policies such as cutting funds for some of the biggest chinese construction companies. Whether this policy has direct intention to control the price of the commodity we are not 100% sure, but it is indeed working in China’s favor.
The other fact is Brazil, second biggest Iron Ore producer Vale has also back in full production, hence flooding the market with iron ore as previously mentioned. The key is to detect when the turn around will happens to benefit from buying these stocks at lower prices.
We gave a little crack on buying FMG stock together with some VIP Members last week, however, when we double checked the trend we have decided to cease and lock in a small 5% profit, then wait to see further consolidation. As iron ore price has recently hitting twice its 52 weeks low, it appears that we could see further fall on the commodity, most likely taking the stock price of BHP, Rio Tinto, and FMG to a new lows.
Fortescue Metals Group Ltd (Often referred to as FMG) is an Australian iron ore company.
As of 2017, Fortescue is the fourth largest iron ore producer in the world after BHP, Rio Tinto, and Vale. The company has holdings of more than 87,000 km2 in the Pilbara region of Western Australia, making it the largest tenement holder in the state, larger than both BHP and Rio Tinto. The SP is directly exposed to iron ore price fluctuation, despite the
FMG generally gives the market the widest SP swing, making a very good stock to trade.
SP has fallen 34% within a month and it looks like will hit $15 very soon.
Our initial on FMG was $15 as per our last analysis in early October and that was achieved even reaching $14. As Iron ore price has taken a deep under US$ 100 we could now see FMG shares to tasting new lows, despite a bullish intersection level 1 indicated in the circles.
See the last stock Chart analysis with the achieved target.
We could soon see FMG reaching $14 again or even $12 if iron ore prices stays around US$90.
Traders or investors should wait for the next strong reversal indicator to appear as trading against the trend is still dangerous and most of time ends up in loss. Furthermore, a close look at the iron ore prices is critical.
100% from by the sale of Iron Ore.
(Asx: RIO) | Rio Tinto
Rio is the third largest iron ore producer in the world, however unlike FMG, Rio offer investors exposure to other commodities as well. Rio tinto searches for and extract a variety of minerals worldwide, with the heaviest concentration in North America and Australia. Iron ore is the dominant commodity, with significantly lesser contribution from aluminium, copper, diamonds, gold and industrial materials.
SP has also taken the hit after a great FY21 results. SP has fallen 24% within the last month, outperforming its peers FMG and even the giant BHP which has seen its SP slashed recently when announced was selling its Energy operation to Woodside. SP is currently trading pretty much at the same levels of last year when iron ore price was ranging around $120-$125, and now that Iron Ore price is at low US$90 if continue pressure on the commodity remains we may see our target 2 fulfilled very soon. Buying at current levels also poses the same risk of FMG (buying against the trend). It is currently technically cheap as it trades 9% under SMA 250. Our target 1 was $90 (reached). If iron ore keeps on heading down to meet same levels of 2019 we could well see Rio shares at $80 again, making it our Target 2 , $80. Unlike, FMG that we found a bullish intersection (potentially a bull trap though), no reversal indicator was found yet and SP appears be in downtrend still.
See the last stock Chart analysis with the achieved target.
Although we said that buying Rio under $90 could be a pretty decent entry for the long term we may able to buy RIO around $80 or under in the next few weeks.
~ 60% Iron Ore
~ 20% Aluminum
~ 10% Copper
~ 10% Energy and minerals
(Asx: BHP) | BHP
BHP is the world’s largest diversified miner supplying iron ore, copper, oil and gas (recently being sold to WPL) and metallurgical. The company’s major assets include Pilbara iron ore, Queensland coking coal, Escondida copper and conventional petroleum asset (recently being sold to WPL). BHP supposed to be the least risky of the three to invest, however has taken larger hit on the SP due the sale of the energy asset and the delisting of UK exchange.
SP is currently trading 25% under SMA taken heavy falls due iron ore, delisting and sale of the energy asset. It could potentially be the best buying among the three of these stocks. Because this BHP is not only exposed to iron ore, it makes pointless to directly compared its SP to Iron ore price movement.
As per our last analysis in early October we setup a target of $35 per share which has fulfilled. This target was based that Iron Ore price stayed around US$100, however at the time of this analysis the commodity has hit a 52 weeks low under $US$ which could trigger another sell off. To make things worse for BHP, we also have seen some Copper price pressure, despite it is still in uptrend.
You can see Copper prices also had almost 20% correction, putting a lots of pressure on BHP and RIO stocks in fact more than FMG in this last week.
See the last stock Chart analysis
Now the SP is hitting our predicted bottom and the SP formation is indicating a potential breakout. If that happens we could see BHP shares down to $32 or even $30.
~ 57% Iron Ore
~ 28% Copper
~ 15% Coal
Petroleum sold to Woodside
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