Iron ore prices are continuing to rise with other industrial metals as markets re-price resources in light of the brighter global manufacturing outlook. Last night, the key iron ore index (62% fines in China) rose again. It is now at U$96.50, well off the lows below $90. Traders looking for leverage to this development could consider Fortescue Metals.
The reason is Fortescue’s high volatility. The 20 day historic volatility has risen from lows around 30% to above 50% (bottom of chart) - comparing well to an index volatility of 10.5%. This implies an average daily move in FMG above 3%. Yesterday’s 5%+ move is a case in point. It came on the back of a much more modest iron ore price rise of 0.8%, making it the traders’ choice.
The chart is suggesting potential for an explosive move. A break above resistance at $4.66 would complete a head and shoulders formation, and point to a possible sharp rise to highs around $5.70. This is one to watch at today’s opening, as any strength could start a technical scramble.