It was a good day for investors in iron ore stocks. This morning saw news that shipments to China from Port Hedland were up 10% last month. At the same time, the spot price is defying predictions of a decline (at least at this stage). The Tjianjin import index stood at a solid $136.80 yesterday.

This has led to an interesting situation in the chart of mining company,  Atlas Iron (ago.asx). The chart has confirmed a break above the 200 day moving average with a move past  what looks like the neck line of a bullish head and shoulder pattern. All this is happening at what could be the end of a 5 swing decline creating the potential for a decent corrective rally.

I've shown this interpretation of events on a weekly chart to provide a big picture. However, the Atlas Iron head and shoulder probably looks a bit more obvious to the eye on a daily chart.

Atlas Iron Head and Shoulder

Atlas Iron Head and Shoulder - Weekly CFD Click to enlarge Atlas Iron Head and Shoulder - Weekly CFD
Click to enlarge

The 200 day moving average may be useful in this situation.

  • First, it provides additional evidence that this bullish head and shoulder could be significant.
  • Second it could be useful as a logical place for a stop loss  if the bullish strategy fails. When they act as valid support these long term averages tend to provide a zone of support with price often pushing a bit through the line. That logic might suggest a stop loss that allows reasonable tolerance below the average itself.