IO Weekly Technicals Review [2024/48]: Bullish Trend to Persist
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) rose last week, closing USD 4.17/ton higher by 29/Nov (Fri).
SGX IO Futures opened at USD 99.85/ton on 25/Nov (Mon) and closed at USD 104.02/ton on 29/Nov (Fri).
Prices briefly touched a weekly high of USD 104.85/ton on 29/Nov (Fri) and a low of USD 99.80/ton on 25/Nov (Mon). It traded in a range of USD 5.05/ton during the week.
Prices traded above the pivot point of USD 99.30/ton for the entire week and closed above the R1 point of USD 102.90/ton.
Volume peaked on 28/Nov (Thu), as iron ore prices declined gently. The market balanced optimism in China’s steel market against disappointing economic data.
Iron Ore Fundamentals in Summary
Iron ore prices posted a second weekly gain on 29/Nov (Fri), driven by signs of recovery in China’s steel industry and expectations of further stimulus from Beijing by year-end.
Losses at Chinese mills narrowed in October, supported by government growth measures, but overcapacity and weak property demand keep steel among the economy's worst-performing sectors.
Cumulative losses in China’s steel industry dropped to 23 billion yuan (USD 3 billion) in the first 10 months, down from 34 billion yuan over nine months.
China’s manufacturing PMI for November came in at 50.3, beating analyst expectations of 50.2 and last month’s figure of 50.1.
China's port iron ore stockpiles dropped 1.5% to 148.5 million tons in the week ending 29/Nov, according to Steelhome data.
Based on seasonality, SGX IO Futures Jan contract trades 6.9% below its last 5-year average (USD 111.12/ton).
Short-Term Moving Averages Indicate Reversal in Bearish Trend
The gap between the 9-day and 21-day moving averages narrowed earlier in the week, culminating in a golden cross on 28/Nov, when the 9-day moved above the 21-day. This signals the potential onset of a bullish trend.
Long-Term Averages Signal Growing Bullish Trend
IO prices closed below the 200-day Displaced Moving Average (DMA) and oscillated between the 200d-DMA and 100d-DMA throughout the week. Prices are inching towards the 200d-DMA at USD 105/ton which could act as near-term price resistance.
MACD Points to Strengthening Bullishness, RSI Grew But Still Neutral
The MACD indicated a strengthening bullish trend throughout last week. Meanwhile, the RSI is at 54.13, signaling a neutral trend treading just above the midpoint, while the RSI-based moving average is at 49.44.
Volatility Declines, Price Tests 50% Fibonacci Level
Volatility declined sharply last week. Prices broke above the 38.2% Fibonacci level to test the 50% level & held resistance there. With upward momentum since 18/Nov (Mon), support is now expected at USD 103.15/ton (38.2% retracement), with resistance at USD 105.40/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 trades at a high-volume node, which may act as resistance or support this week.
Iron Ore Prices Set to Climb Ahead of Lunar New Year
Iron ore prices generally increase in November and December due to seasonal patterns that prompt restocking in anticipation of China's Lunar New Year, driven by higher demand for steel production. Since 2014, the average growth has been 7.6%.
Hypothetical Trade Setup
With seasonally strong demand ahead of the Lunar New Year, improving conditions for Chinese steelmakers, expectations of further stimulus, and a stronger-than-expected manufacturing PMI, iron ore prices are poised to rise. To express a bullish view with limited risk, consider a bullish put spread using SGX IO options.
This strategy involves selling a put at a higher strike (USD 99/ton) to collect premiums of protection against downside risk. To limit the downside risk, the second leg of the trade involves buying a put at a lower strike (USD 95/ton). This offers a fixed reward-to-risk profile.
A hypothetical setup with a short put at USD 99/ton and a long put at USD 95/ton, expiring on 31/Jan, provides a maximum upside of USD 118/lot (if IO prices remain above USD 99/ton). This strategy exposes the investor to a max loss of USD 282/lot (if IO prices drop below USD 95/ton). The breakeven for the trade is at USD 97.82/ton.
Option premiums are based on settlement prices as of the close of markets on 29th November 2024.
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 99.85/ton on 25/Nov (Mon) and closed at USD 104.02/ton on 29/Nov (Fri).
Prices briefly touched a weekly high of USD 104.85/ton on 29/Nov (Fri) and a low of USD 99.80/ton on 25/Nov (Mon). It traded in a range of USD 5.05/ton during the week.
Prices traded above the pivot point of USD 99.30/ton for the entire week and closed above the R1 point of USD 102.90/ton.
Volume peaked on 28/Nov (Thu), as iron ore prices declined gently. The market balanced optimism in China’s steel market against disappointing economic data.
Iron Ore Fundamentals in Summary
Iron ore prices posted a second weekly gain on 29/Nov (Fri), driven by signs of recovery in China’s steel industry and expectations of further stimulus from Beijing by year-end.
Losses at Chinese mills narrowed in October, supported by government growth measures, but overcapacity and weak property demand keep steel among the economy's worst-performing sectors.
Cumulative losses in China’s steel industry dropped to 23 billion yuan (USD 3 billion) in the first 10 months, down from 34 billion yuan over nine months.
China’s manufacturing PMI for November came in at 50.3, beating analyst expectations of 50.2 and last month’s figure of 50.1.
China's port iron ore stockpiles dropped 1.5% to 148.5 million tons in the week ending 29/Nov, according to Steelhome data.
Based on seasonality, SGX IO Futures Jan contract trades 6.9% below its last 5-year average (USD 111.12/ton).
Short-Term Moving Averages Indicate Reversal in Bearish Trend
The gap between the 9-day and 21-day moving averages narrowed earlier in the week, culminating in a golden cross on 28/Nov, when the 9-day moved above the 21-day. This signals the potential onset of a bullish trend.
Long-Term Averages Signal Growing Bullish Trend
IO prices closed below the 200-day Displaced Moving Average (DMA) and oscillated between the 200d-DMA and 100d-DMA throughout the week. Prices are inching towards the 200d-DMA at USD 105/ton which could act as near-term price resistance.
MACD Points to Strengthening Bullishness, RSI Grew But Still Neutral
The MACD indicated a strengthening bullish trend throughout last week. Meanwhile, the RSI is at 54.13, signaling a neutral trend treading just above the midpoint, while the RSI-based moving average is at 49.44.
Volatility Declines, Price Tests 50% Fibonacci Level
Volatility declined sharply last week. Prices broke above the 38.2% Fibonacci level to test the 50% level & held resistance there. With upward momentum since 18/Nov (Mon), support is now expected at USD 103.15/ton (38.2% retracement), with resistance at USD 105.40/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 trades at a high-volume node, which may act as resistance or support this week.
Iron Ore Prices Set to Climb Ahead of Lunar New Year
Iron ore prices generally increase in November and December due to seasonal patterns that prompt restocking in anticipation of China's Lunar New Year, driven by higher demand for steel production. Since 2014, the average growth has been 7.6%.
Hypothetical Trade Setup
With seasonally strong demand ahead of the Lunar New Year, improving conditions for Chinese steelmakers, expectations of further stimulus, and a stronger-than-expected manufacturing PMI, iron ore prices are poised to rise. To express a bullish view with limited risk, consider a bullish put spread using SGX IO options.
This strategy involves selling a put at a higher strike (USD 99/ton) to collect premiums of protection against downside risk. To limit the downside risk, the second leg of the trade involves buying a put at a lower strike (USD 95/ton). This offers a fixed reward-to-risk profile.
A hypothetical setup with a short put at USD 99/ton and a long put at USD 95/ton, expiring on 31/Jan, provides a maximum upside of USD 118/lot (if IO prices remain above USD 99/ton). This strategy exposes the investor to a max loss of USD 282/lot (if IO prices drop below USD 95/ton). The breakeven for the trade is at USD 97.82/ton.
Option premiums are based on settlement prices as of the close of markets on 29th November 2024.
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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