IO Weekly Technicals Review [2024/47]: Uptrend to Continue
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) rose last week, closing USD 3.83/ton higher by 22/Nov (Fri).
SGX IO Futures opened at USD 96.75/ton on 18/Nov (Mon) and closed at USD 100.58/ton on 22/Nov (Fri).
Prices briefly touched a weekly high of USD 102.70/ton on 22/Nov (Fri) and a low of USD 95.80/ton on 18/Nov (Mon). It traded in a range of USD 6.90/ton during the week, which was smaller than the prior week.
Prices traded above the pivot point of USD 98.80/ton for the entire week and closed below the R1 point of USD 101.35/ton.
Volume peaked on 18/Nov (Mon), as iron ore prices surged, fueled by the seasonal trend of increased restocking ahead of the Lunar New Year.
Iron Ore Fundamentals in Summary
Iron ore prices remain well supported despite high stockpiles at Chinese ports thanks to strong consumption and robust Q4 steel production.
Inventory levels at major Chinese steel mills rose 13.84% to 15.6 MMT in mid-November compared to early November, according to the China Iron and Steel Association.
Volumes were 1.4% higher than the same period last year. Meanwhile, daily crude steel production at major Chinese steelmakers decreased by 0.8% from early November.
China's central bank maintained its key lending rates unchanged last week, aligning with expectations.
Increased iron ore shipments from major exporters like Australia, coupled with growing stockpiles at Chinese ports, exerted downward price pressure during the second half of last week.
Chinese portside inventories grew by 350k tons WoW to 148.86M tons last week.
Based on seasonality, SGX IO Futures Jan contract trades 7.8% below its last 5-year average (USD 109.87/ton).
Short-Term Moving Averages Continue to Indicate Bearish Trend
The gap between the 9-day and 21-day moving averages widened over the week as the 9-day average continued to decline. Iron ore prices ended the week above the 9-day average but below the 21-day average.
Long-Term Averages Signal Reversal of Bearish Trend
The price closed slightly above the 100-day moving average (DMA) but remained significantly below the 200 DMA. It began the week well below the 100 DMA but steadily climbed to surpass it by the week’s end.
MACD Points to Weakening Bearishness, RSI Remains Neutral
The MACD indicated a weakening bearish trend by the end of last week. Meanwhile, the RSI is at 49.56, signaling a neutral trend treading just below the midpoint. Notably, RSI has stayed above its RSI-based moving average since 19/Nov (Tue).
Volatility Declines, Price Tests the Fibonacci 38.2% Level
Volatility declined steadily throughout the week. Prices broke above the 23.6% Fibonacci level to test the 38.2% level & held resistance there. With upward momentum since 18/Nov (Mon), resistance is now expected at USD 103.15/ton (38.2% retracement), with support at USD 100.35/ton.
Selling Pressure Eased, Price Trading at High Volume Nodes
Selling pressure remains dominant but has eased compared to last week, according to the Accumulation/Distribution (A/D) indicator. The price is trading at a high-volume node previously dominated by sell volume, which may act as resistance or support this week.
Hypothetical Trade Setup
With the seasonal upswing in iron ore prices ahead of the Lunar New Year, demand is expected to remain strong. China’s Manufacturing PMI on 29/Nov (Fri) could spike up volatility. Long futures position exposes investors to downside risk if PMI disappoints. An alternative way to express a bullish view is through a bullish call spread using SGX IO options.
This strategy involves buying a lower strike call and selling a higher strike call, offering a fixed upside and downside with a smaller premium cost than a long call. A hypothetical setup with a long call at USD 102/ton and a short call at USD 104/ton, expiring 31/Jan, offers a 1.67x reward-to-risk ratio. This position provides a max profit of USD 125/lot, a max loss of USD 75/lot, and breaks even at USD 102.75/ton.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
SGX IO Futures opened at USD 96.75/ton on 18/Nov (Mon) and closed at USD 100.58/ton on 22/Nov (Fri).
Prices briefly touched a weekly high of USD 102.70/ton on 22/Nov (Fri) and a low of USD 95.80/ton on 18/Nov (Mon). It traded in a range of USD 6.90/ton during the week, which was smaller than the prior week.
Prices traded above the pivot point of USD 98.80/ton for the entire week and closed below the R1 point of USD 101.35/ton.
Volume peaked on 18/Nov (Mon), as iron ore prices surged, fueled by the seasonal trend of increased restocking ahead of the Lunar New Year.
Iron Ore Fundamentals in Summary
Iron ore prices remain well supported despite high stockpiles at Chinese ports thanks to strong consumption and robust Q4 steel production.
Inventory levels at major Chinese steel mills rose 13.84% to 15.6 MMT in mid-November compared to early November, according to the China Iron and Steel Association.
Volumes were 1.4% higher than the same period last year. Meanwhile, daily crude steel production at major Chinese steelmakers decreased by 0.8% from early November.
China's central bank maintained its key lending rates unchanged last week, aligning with expectations.
Increased iron ore shipments from major exporters like Australia, coupled with growing stockpiles at Chinese ports, exerted downward price pressure during the second half of last week.
Chinese portside inventories grew by 350k tons WoW to 148.86M tons last week.
Based on seasonality, SGX IO Futures Jan contract trades 7.8% below its last 5-year average (USD 109.87/ton).
Short-Term Moving Averages Continue to Indicate Bearish Trend
The gap between the 9-day and 21-day moving averages widened over the week as the 9-day average continued to decline. Iron ore prices ended the week above the 9-day average but below the 21-day average.
Long-Term Averages Signal Reversal of Bearish Trend
The price closed slightly above the 100-day moving average (DMA) but remained significantly below the 200 DMA. It began the week well below the 100 DMA but steadily climbed to surpass it by the week’s end.
MACD Points to Weakening Bearishness, RSI Remains Neutral
The MACD indicated a weakening bearish trend by the end of last week. Meanwhile, the RSI is at 49.56, signaling a neutral trend treading just below the midpoint. Notably, RSI has stayed above its RSI-based moving average since 19/Nov (Tue).
Volatility Declines, Price Tests the Fibonacci 38.2% Level
Volatility declined steadily throughout the week. Prices broke above the 23.6% Fibonacci level to test the 38.2% level & held resistance there. With upward momentum since 18/Nov (Mon), resistance is now expected at USD 103.15/ton (38.2% retracement), with support at USD 100.35/ton.
Selling Pressure Eased, Price Trading at High Volume Nodes
Selling pressure remains dominant but has eased compared to last week, according to the Accumulation/Distribution (A/D) indicator. The price is trading at a high-volume node previously dominated by sell volume, which may act as resistance or support this week.
Hypothetical Trade Setup
With the seasonal upswing in iron ore prices ahead of the Lunar New Year, demand is expected to remain strong. China’s Manufacturing PMI on 29/Nov (Fri) could spike up volatility. Long futures position exposes investors to downside risk if PMI disappoints. An alternative way to express a bullish view is through a bullish call spread using SGX IO options.
This strategy involves buying a lower strike call and selling a higher strike call, offering a fixed upside and downside with a smaller premium cost than a long call. A hypothetical setup with a long call at USD 102/ton and a short call at USD 104/ton, expiring 31/Jan, offers a 1.67x reward-to-risk ratio. This position provides a max profit of USD 125/lot, a max loss of USD 75/lot, and breaks even at USD 102.75/ton.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
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