Calling a Top on the FMG Share Price: Why and How (ASX:FMG)

At time of writing, the share price of Fortescue Metals Group Ltd. [ASX:FMG] is down 2.5%, trading at $11.09.

Today, the thesis is that we have just seen a long-term (2–3 years) top for the FMG share price.

It certainly won’t be pleasant news for FMG enthusiasts, but we will throw up a few charts and try and make the case.

This is the potential resistance at around the $11.30 mark dating back to the last top in June 2008.

Its all-time high was $13.15.

Fortescue Metals Share Price Chart - ASX FMG

Source: tradingview.com

We discuss the latest iron ore news, FMG’s upgraded guidance and the latest move in the BDI index.

FMG share price moves on coronavirus, but if it breaks below this price the top could be in

Today’s movement in the FMG share price could be tied to the broader market selling pressure working together with fears emanating from China.

With the death toll from coronavirus rising, it’s conceivable that steel mill production could be impacted at some point.

In a Reuters interview, FMG CEO Elizabeth Gaines said, ‘market conditions remain very positive’ and that there is no direct coronavirus impact on its operations as the company doesn’t have any shipments scheduled to ports that are in lockdown.

FMG has just announced a 9% rise in Q2 iron ore shipments.

But if the downward momentum continues and the FMG share price moves below this range, the top could be in:

ASX FMG - FMG Share Price Chart

Source: tradingview.com

A move below this range would solidify the case for a sustained downturn in the FMG share price, in my eyes.

It all comes down to China.

You see, in China stimulus is now back on the agenda after the outbreak.

The PBOC announcing yesterday (Sunday) a US$174 ‘reverse repo’ operation, in essence pumping money into a volatile market to smooth things out.

We’ve talked about how bad news is good news for iron ore miners like FMG before.

But at some point bad news, becomes actual bad news.

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Digging into the iron ore puzzle

Let’s have a look Baltic Dry Index below:

ASX FMG - Baltic Dry Index

Source: Trading Economics

A huge peak in mid-2008 which coincides with the FMG share price all-time high.

The BDI is a measure of the cost of shipping goods around the world.

Now you may be thinking, great FMG can get a better deal on shipping its iron ore to China’s steel mills.

I’m not so sure it works like that.

It’s more tempting to say the sharp fall in the index from a September peak points to weakening global demand for commodities, which includes iron ore.

FMG may be forecasting a rosy picture for Chinese steel demand — and we wrote earlier that coronavirus fears may be overstated (to gold’s benefit).

But if you dig into what’s going on in China — and indeed what the RBA sees, it becomes hard to see the FMG share price reversing its recent movement downwards and pushing to all-time highs.

If you want to read the case for a multi-year iron ore bear market, you can read that here.

Regards,

Lachlann Tierney,

For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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