At the time of writing, shares of Fortescue Metals Group Ltd [ASX:FMG] are down by 1.64%, to $3.90 per share.
Why did Fortescue Metals shares do this?
Fortescue Metals is considered a blue chip company and tends to move with the market. That makes sense. The ASX 200 Index is currently down by 52.9 points to 5852 points:
The ASX 200 rallied to retest resistance at the 6,300 level and couldn’t meaningfully break out. The market dropped causing a mini panic and looks to be in the process of bottoming ― there’s strong support around the 5,800 level. The end of a correction should spell good news for Fortescue Metals. The company has held up relatively well during the latest market turmoil:
Nonetheless, Fortescue Metals remains in a downtrend ― a negative. We’re seeing Fortescue Metals consolidate around the high $3 zone, attempting to break resistance at $4 per share. At this stage, the risk-reward favours the short side around these prices ― the trend is your friend.
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What now for Fortescue Metals?
That said, if Fortescue Metals breaks through the $4 level 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’ earnings:
The iron ore price is taking off, after trading sideways for months. It’s now trading near resistance, so there are question marks regarding whether the price will surge further. That said, iron ore is trading booming and that has reflected in Fortescue Metals’ share price during the share market correction. In that case, given iron ore is the main source of Fortescue Metals’ revenue, a rising iron ore price is positive for the company.
The bottom line: Fortescue Metals’ 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.
Resources Analyst, Markets & Money
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