At the time of writing, shares of Fortescue Metals Group Ltd [ASX:FMG] are down by 2.83%, to $3.945 per share.
Why did Fortescue Metals Group shares do this?
The ASX 200 bounced off the 5,600 zone, as we warned it would last week. The market looks in the process of bottoming around this zone; although we may see a double bottom into the US election on 6 November. That said, the market really needs to monthly close above 6,000 points to resume the rally. The end of a correction should spell good news for Fortescue Metals Group. The company has held up relatively well during the latest market turmoil:
Fortescue Metals Group has consolidated since early September ― the share price has been stuck in a 40-cent range. We’re seeing Fortescue Metals Group trying to break through resistance at $4 per share. But, at this stage, the risk-reward favours the short side around these prices ― the trend is your friend and the market could still make a double bottom.
What now for Fortescue Metals Group?
That said, if Fortescue Metals Group closes above the $4 level on a monthly basis and reverses trend, we could see a swift short-covering rally to $5. For the share price to take off though, we want to see the overall market bounce to signal the correction is over.
Let’s take a look at the iron ore price ― the main contributor to Fortescue Metals Group’s earnings:
The iron ore price is taking off, after trading sideways for months. It appears to be moving towards the US$76–78 per tonne level. That’s possibly why FMG’s share price is holding up, given the reasonably weak market environment. In that case, given iron ore is the main source of Fortescue Metals Group’s revenue, a rising iron ore price is positive for the company.
The share price could explode higher soon…
The bottom line: Fortescue Metals Group’s future is mainly dependent on the overall market today, rather than the iron ore price. In that case, pay close attention to the share price: we could see a short covering rally with the iron ore price, if the market starts to reverse higher.
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