IO Weekly Technicals Review [2024/42]: IO Reversal Deepens

22 thg 10

SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) fell last week for a second week in a row, closing USD 4.15/ton lower by Friday.

SGX IO Futures opened at USD 105.85/ton on 14/Oct (Mon) and closed at USD 101.70/ton on 18/Oct (Fri).

Prices briefly touched a weekly high of USD 109.05/ton on 14/Oct (Mon) and a low of USD 99.30/ton on 17/Oct (Thu). It traded in a range of USD 9.75/ton during the week, which was smaller than the prior week.

Prices traded below the pivot point of USD 108.10/ton for the entire week but managed to hold support above the S1 pivot point at 101.15.

Volume peaked on 17/Oct (Thu) as Iron Ore prices declined despite the announcement of expanded housing stimulus measures.

SGX Iron Ore Futures Fundamentals in Summary

Further measures to support the housing industry in China were announced on 17/Oct (Thu). The measures included widened support under the “white list” program to 4 trillion Yuan.

PBoC started the week with a 25 bps cut to the 5-year loan prime rate and a 25 basis point cut to the 1-year loan prime rate offering additional easing measures. Despite an early rally, IO pared gains by the end of the day.

China's GDP growth in Q3 was 0.9%, falling short of analyst expectations but exceeding the 0.5% growth recorded in Q2, which was revised downward. Annual GDP growth reached 4.6%, significantly below the 5% target.

IO China Portside inventories rose by 1.89M tons to 149.73 million tons last week. The increase was driven by significantly higher arrivals and low pace of pickup due to slower restocking.



Based on seasonality, SGX IO Futures Nov contract trades 3.5% below its last 5-year average (USD 105.58/ton). Seasonal performance also suggests there could be a price dip with a low in the next couple of weeks.



Short-Term Moving Averages Signal Reversal of Bullish Trend

The 9-day moving average is continuing its downward trend and marked a bearish crossover on 21/Oct (Mon). Last week, the price held support above the S1 pivot point but faced rejection at the P pivot point on 21/Oct (Mon).

Long-Term Averages Signal Bearish Trend



Price fell below the 100-day moving average on 17/Oct (Thu). Despite reaching highs above this level, price has failed to close above the MA.

MACD Points to Downturn, RSI Flat



MACD signals an ongoing bearish trend since 16/Oct (Wed) with the distance between long and short-term MA continuing to expand as of 21/Oct (Mon). RSI is at the mid-point level of 49.5 signaling neutral trend.

Volatility Eases, Fibonacci 50% Maintained Support Last Week



Volatility briefly edged up in the middle of last week but now continues to decline and has reached the lowest level in October. The 50% Fibonacci level was tested last week but managed to maintain support. With a continued downward trend, the 61.8% Fibonacci level at 97.55 is the next major support level to watch if price declined below 50%.

Selling Pressure Dominates, Price Gap Likely to be Tested This Week



Heavy selling pressure dominates IO trading according to the Accumulation/Distribution indicator (A/D). Price trades at a high volume node which was dominated by sell volume and below a low volume valley which could be tested during the week. The bullish flag failed to maintain last week as prices fell further instead of consolidating.

Hypothetical Trade Setup



Iron Ore prices continued to decline last week as the expanded stimulus measures disappointed market expectations once again. Bearish trend in IO continues as fundamentals signal more pain in store and short-term MA signaled a bearish crossover.

We propose a hypothetical trade set up of selling SGX IO November Futures Contract at USD 101.2/ton with a stop at USD 104.05/ton and target at USD 97.5/ton resulting in reward-to-risk ratio of 1.30x.

• Entry: USD 101.2/ton
  
• Target: USD 104.05/ton
  
• Stop Loss: USD 97.5/ton
  
• Profit at Target: USD 370/lot ((101.2-97.5) x 100)
  
• Loss at Stop: USD 285/lot ((101.2-104.05) x 100)
  
• Reward to Risk: 1.30x
  

This calculation excludes transaction costs comprising of clearing broker fees and exchange clearing fees. The SGX requires a minimum initial margin of USD 1,232/lot and a maintenance margin of USD 1,120/lot.


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.