Despite an outstanding profit report, yesterday's trading produced a warning sign for Fortescue. A profit taking correction looks to be getting underway.
As had been widely anticipated following their production report, Fortescue's profit report was all good news. The centrepiece was a 12c dividend. Operational excellence is forecast to continue next year, with the company confirming shipping guidance of 165-170m tonnes of iron ore and a C1 (basic mining) cost in the range of $US 12-13.
From here, Fortescue’s share price is likely to be all about the iron ore price. There are risks associated with that given planned production increases by Roy Hill and Brazil’s Vale.
Yesterday’s price action produced a fascinating situation for chart followers. The stock opened 2.4% higher but weakened and closed down 2.4%. In doing so, it peaked exactly at two AB=CD levels as outlined on the chart below. Here the second CD swing is the same size as the AB swing. These levels are often turning points for trends.
Further selling this morning has confirmed a trend change for Fortescue. It is now making lower highs and lower lows. Given yesterday's peak was at a harmonic point, this minor trend change could now produce a significant correction. That might bring the trend line support into play. Depending on how quickly price falls, the share price could hit the trend line somewhere between$4.40 and $4.20. The top end of this intersects with previous highs and lows while the lower end finds the 38.2% Fibonacci retracement.
How this plays out is likely to depend on the iron ore price