At the time of writing, shares of Rio Tinto Ltd [ASX:RIO] are down by 1.61%, to $77.18 per share.
Why did Rio Tinto shares do this?
Rio Tinto is considered a blue chip company and tends to move with the market. That makes sense. Following the 100-plus point drop earlier in the week, the ASX 200 Index is currently down by 43.1 points to 5,689.7 points:
The ASX 200 experience a ‘dead cat bounce’ after the US election. That said, the market isn’t out of the woods yet. It’s extremely volatile, figuring out what to do next. Will it be a move higher or lower? No one knows. But it looks like we’re going to see a technical re-test of 5,600 points ― major technical support. That move might wear on Rio Tinto’s share price:
Rio Tinto experienced a nice rally off major support at $70 on the chart above. The company bounced quickly to resistance at $82 per share. We’re seeing Rio Tinto moving back into the consolidation zone.
What now for Rio Tinto?
At this stage, the risk-reward favours the short side around these prices. But there’s little suggestion where Rio Tinto will move next or whether it will re-test its prior low. There’s a chance that could happen. However, we want to see the overall market boom for the share price to take off. That said, let’s take a look at the iron ore price ― the main contributor to Rio Tinto’s earnings:
The iron ore price has been booming since September, which reflected in Rio Tinto’s recent share price bounce. Yet, despite the strong uptrend, the iron ore spot price is nearing resistance. There’s question marks whether the price will drop lower in the short-term. In that case, given iron ore is the main source of Rio Tinto’s revenue, a lower iron ore price isn’t good news for shareholders.
The bottom line: Rio Tinto’s future is mainly dependent on the overall market today, rather than the iron ore price. But both have question marks this week, which probably isn’t good for Rio Tinto’s share price in the short-term. I believe Rio Tinto is likely to re-test the $70 level in the weeks ahead. We will track this story and analyse any future developments.
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