At the time of writing, shares of Fortescue Metals Group [ASX:FMG] are down by 0.94%, to $4.23 per share.
Why did Fortescue Metals Group Ltd shares do this?
Fortescue Metals Group is considered a blue-chip company and tends to move with the market. That makes sense. The ASX 200 Index is currently trading lower today, down by 25.4 points to 5902.8 points:
The ASX 200 bounced off the 5,600 zone, as we warned it would last month. The market looks in the process of bottoming around this zone. Looking forward, the market really needs to monthly close above 6,100 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’s share price has consolidated since early September, stuck in a 40-cent range. That said, as we warned many times last month, Fortescue Metals Group looked like breaking through resistance of $4 per share. The share price is now trading around resistance of $4.20.
What now for Fortescue Metals Group Ltd?
Fortescue Metals Group could see a swift short-covering rally to $5 per share soon. Although, for the share price to truly take off, we really want to see the overall market move higher 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 has exploded in the last few 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 skyrocket 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 to $5 per share, if the market starts to reverse higher. But this forecast shouldn’t be a shock. I have warned that FMG about to take off for weeks. That’s happening now.
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