IO Weekly Technicals Review [2024/44]: Set For Large Move SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) expiring in December rose last week, up by USD 0.54/ton on Friday, though prices gave up some gains by the end of the week.
SGX IO Futures opened at USD 101.60/ton on 28/Oct (Mon) and closed at USD 102.14/ton on 01/Nov (Fri).
Prices briefly touched a weekly high of USD 104.60/ton on 29/Oct (Tue) and a low of USD 101.30/ton on 28/Oct (Mon). It traded in a range of USD 3.30/ton during the week, which was smaller than the prior week.
Prices traded just above the pivot point of USD 103.70/ton for most of the week before falling below it on Friday.
Volumes were noticeably lower in the later part of the week. Highest volume was observed on 30/Oct (Wed).
SGX Iron Ore Futures Fundamentals in Summary
China’s parliament has started its five-day meeting on 4/Nov (Mon) and is expected to announce the details of the fiscal support on 8/Nov (Fri). Analysts suggest the fiscal plan could reach 10 trillion yuan (USD 1.4 trillion), with most funds likely allocated to refinancing local government debt. The outcome is likely to drive significant volatility during the week.
China’s manufacturing PMI rose from 49.8 to 50.1 in Oct as the manufacturing sector shifted into expansion after 5 months of contraction. Non-manufacturing PMI also rose to 50.2 from 50.0.
Steel industry PMI rose to 54.6 from 49 in prior month. The PMI reading was the highest since July 2018. The output index rose to 63.6 suggesting the stimulus helped boost steel production.
Caxin’s China manufacturing PMI rose from 49.3 to 50.3 in October recovering from the dip in September.
IO China Portside inventories rose by 770k tons to 150.1 million tons last week. The pickup volume declined further by 13k tons. Accumulating inventories pose a risk to IO demand.
Based on seasonality, SGX IO Futures Dec contract trades 3.6% higher than its last 5-year average (USD 99.31/ton).
Short-Term Moving Averages Signal Bearish Trend
Prices recovered following the bearish MA crossover on 22/Oct but failed to rise above the 21-day moving average. The 21-day moving average served as a resistance level throughout last week.
Long-Term Averages Provide Support
Prices shot above the 100-day moving average on 28/Oct (Mon) and managed to hold above this level for the rest of the week. Price re-tested this support level on 4/Nov (Mon) but seems to be holding above it for now.
MACD Points to Fading Decline
The MACD suggests a weakening bearish trend, with the short-term MA positioned just below the long-term MA. However, both MAs are trending downward, making a bullish crossover unlikely without a sharp rally. The long-term MA may serve as support. The RSI is near a neutral level at 51.02.
Fibonacci 38.2% Tested Last Week
Following the retracement of the bearish trend since the start of October, prices rallied to the 38.2% Fib level but failed to surpass it. This could indicate a continuation of the bearish trend. Though, the USD 100/ton level may provide psychological support.
Price Trading Just Below Volume Point of Control
Sellers continued to dominate trading despite an uptick in buyers early last week. Price faced resistance at the volume point of control for October (USD 103.55/ton). There is another area of volume concentration at (USD 101.15/ton) which could provide near-term support.
Bollinger Bands Narrowing with Low Volatility
Bollinger Bands for IO futures are narrowing and their width is near the lowest contraction since August, increasing the likelihood of a sharp breakout. Price is currently at the mid-point of the Bollinger Bands. Historical Volatility also continued to decline last week and reached its lowest level since August.
Iron Ore Options Favor Calls
SGX IO options expiring in December have an OI put/call ratio of 0.86 as of 1/Nov which favors calls. Over the past week, trading in this contract was heavily skewed towards call with a volume put/call ratio of 0.38. Additionally, last week, near-term options expiring in November saw a large buildup of call options around the USD 105 strike suggesting bullish sentiment in the near-term. The delta-25 options skew for December options also shows a sharp increase in call IV alongside a narrowing skew suggesting high demand for calls.
Hypothetical Trade Setup
Iron Ore volatility has reached its lowest level since August. The rally last week failed to continue past the short-term moving average and the volume profile point of control and IO gave up substantial gains in the later part of the week despite the encouraging data from PMI releases. The results of the ongoing parliamentary meeting are expected on 9/Nov (Fri) and are likely to drive substantial moves in prices. Options activity over the last week showed a high concentration of activity for call options, especially at the strike level of USD 105/ton. The IV for IO options has also been rising unlike the historical volatility. A sharp upside move is likely, though, if the fiscal stimulus disappoints, prices may also decline sharply.
Expressing the bullish view through a long futures exposes the position to higher risk if stimulus disappoints. Investors can instead express the bullish view using SGX IO options. A bullish call spread benefits from an increase in prices and offers a fixed upside and fixed downside along with a smaller premium cost than a long call position. Bullish call spread consists of long call at a lower strike and short call at a higher strike. A hypothetical trade setup consisting of USD 105/ton for the long call leg and USD 109/ton for the short call leg on the options contract expiring on 31/Dec offers a reward to risk ratio of 3x. The USD 109/ton level coincides with the peak during the last rally in mid-October and is close to the 200-day moving average, prices could face resistance above this level. This position offers a max profit of USD 299/lot and a max loss of USD 101/lot and breaks even when prices rise above USD 106.1/ton.
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.
FEM1! trade ideas
IO Weekly Technicals Review [2024/43]: Term Structure Divergence
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) closed nearly flat last week, down by just USD 0.10/ton on Friday after recovering from a mid-week decline.
SGX IO Futures opened at USD 101.65/ton on 21/Oct (Mon) and closed at USD 101.55/ton on 25/Oct (Fri).
Prices briefly touched a weekly high of USD 103.45/ton on 21/Oct (Mon) and a low of USD 98.10/ton on 24/Oct (Thu). It traded in a range of USD 5.35/ton during the week, which was smaller than the prior week.
Prices traded below the pivot point of USD 103.35/ton for the entire week but managed to hold support above the S1 pivot point at 97.65.
Volume peaked on 25/Oct (Fri) as Iron Ore prices rallied from near their low following the announcement of a parliamentary meeting to discuss the stimulus package between 4/Nov and 8/Nov.
SGX Iron Ore Futures Fundamentals in Summary
Iron Ore received support in the later part of the week from the announcement of a parliamentary meeting to discuss the stimulus package in China which will take place between 4/Nov and 8/Nov.
The People's Bank of China also said in a statement it had activated the open market outright reverse repo operations facility to "maintain a reasonable abundance of liquidity in the banking system and further enrich the central bank's policy toolbox“ ahead of a significant loan expiry at the end of the year.
IO China Portside inventories declined by 400k tons to 149.33 million tons last week. The decline was driven by slower arrivals as pickup volume declined week on week and steel mill’s restocking pace was below analyst expectations.
Based on seasonality, SGX IO Futures Nov contract trades 2.6% below its last 5-year average (USD 105.58/ton).
Seasonal Trend also suggests a price low is expected in the next few weeks.
Short-Term Moving Averages Signal Reversal of Bullish Trend
Prices began the week on a downward trend, marked by a bearish moving average (MA) crossover on 22/Oct (Tue). After the crossover, prices declined 3%, briefly dipping just above the S1 Pivot Point before recovering sharply on 25/Oct (Fri). On 28/Oct (Mon), prices are trading slightly below the 21-day moving average and the R1 Pivot Point for the week.
Long-Term Averages Signal Bearish Trend
Last week, the price traded below the 100-day moving average, closing just under this level. On 28/Oct (Mon), it rose sharply above the 100-day moving average but remains about 5% below the 200-day moving average.
MACD Points to Fading Decline, RSI Trending Higher
MACD indicates that the bearish trend is weakening, with the short-term MA beginning to curve upward toward the long-term MA. This suggests a potential consolidation around the long-term MA or a bullish crossover if momentum strengthens. Meanwhile, the RSI recently crossed above its 14-day average but remains near the midpoint at 53.84.
Fibonacci 61.8% Maintained Support Last Week
Volatility increased throughout the week but remains below early October levels. Last week, the price tested and held support at the 61.8% Fibonacci level from the prior uptrend. Fib levels from the recent downtrend suggest that the price may next retest the 38.2% level. The 61.8% level remains noteworthy, as it has previously acted as a key area of interest.
Low-Volume Node May Drive Sharp Upward Move
Despite ongoing selling pressure, buyers rebounded sharply in the latter part of the week. The price is currently at a low-volume node and could rise quickly toward the point of control, which aligns with the 50% Fibonacci level.
Calendar Spread Shows Deviation from Backwardation
The recent price movement has created a premium on the April 2025 contract compared to the second-month contract (Nov 2024). A return to the usual backwardation structure is expected. Additionally, speculation over the next two weeks, driven by the upcoming parliamentary meeting, will likely focus on the more liquid Nov 2024 contract, which should further support the spread.
Hypothetical Trade Setup
Iron Ore prices received some support from the announcement of further monetary easing and hopes of further stimulus at the parliamentary meeting next week. The rally has reversed the consistent decline in IO over the past 3 weeks but outlook remains bearish as the impact of stimulus on prices has weakened since early October. In the near-term, stimulus expectations may drive a rally clouding the outlook for a straightforward short position.
We propose a hypothetical trade set up of buying SGX IO November Futures Contract at USD 102.90/ton and selling the SGX IO April 2025 Futures contract at USD 103.60/ton to capitalize on the normalization of the backwardated term structure.
Presently the Nov/April ratio is at 0.99324. An increase to 1.025 presents a 3.25% increase in the spread which results in a gain of USD 321 to USD 330. A stop loss at the ratio of 0.975 protects in case of further decline with a potential loss of USD 189 to USD 194. This calculation excludes transaction costs comprising of clearing broker fees and exchange clearing fees. The SGX requires a minimum initial margin of USD 320/lot and a maintenance margin of USD 352/lot for this intra-commodity spread.
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.
IO Weekly Technicals Review [2024/42]: IO Reversal Deepens
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.
Iron ore futures look heavy after breaking multiple levelsChinese iron ore port inventories are bloated and continue to increase, hitting more than two-year highs last week. When you throw seasonality into the mix, the build is occurring at a time when inventories should be drawing fast. It’s extremely rare, raising questions whether iron ore can hold above $100 when the largest source of steel demand globally – China’s property sector – is on its knees.
From not only a fundamental but technical perspective, SGX iron ore futures look ripe for downside. Having been rejected at resistance at $114 last week, the August 2024 contract has broken the 50-day moving average level, back testing it and then slicing through uptrend support before doing away with horizonal support at $109 on Monday.
Having retested $109 earlier today and failed, a short trade looks in order targeting $102, the low struck in July. The risk reward of selling around these levels is still favourable, although the preference would be to see the price move closer to $109, allowing for a tight stop to be placed above the level for protection. If the trade were to move in your favour, consider lowering your stop to entry level.
DS
Iron ore futures set for another visit below $100?SGX iron ore futures look set for a potential push below $100, breaking a series of downside supports over the past two sessions.
Friday brought a bearish break of the symmetrical triangle futures had been trading in over recent weeks. That was followed up today with the price slicing below $103.50, the low struck on June 11.
With momentum building to the downside and fundamental backdrop darkening due to continued woes in China’s property sector and unseasonably elevated iron ore inventories being held at Chinese ports, the risks look skewed to the downside in the short to medium term.
Traders could sell the break targeting a retest of $97, where futures bounced five times earlier in the year. A stop loss above $103.50 would provide protection against reversal.
DS
iron buddha.The price of red dirt is ready to break down. even with the debasement
of the USD, the price of this commodity has failed to increase.
This colony of the empire (terra nullus) has done well from the plentiful red dirt.
A countries wealth is from its resources . African countries
have always been exploited for this. China's demand for red dirt might
be on the decline.
Maybe a world war might cause this price to spike
as more steel is required to make tanks but then tanks are expensive
and easy targets for $500 drones.
Long SteelWhen the Federal Reserve lowers interest rates, it tends to diminish the appeal of fixed-income assets due to lower yields, prompting investors to seek higher returns elsewhere. This shift often leads to increased investment in commodities, including steel, as they offer a hedge against inflation and potential for speculative gains in a low-rate environment. For someone bullish on steel, a Fed announcement to cut rates could be particularly favorable, as it not only decreases the attractiveness of bonds and similar investments but also potentially weakens the dollar, making commodities priced in USD more attractive to foreign investors. This scenario can drive up the price of steel, benefiting investors who anticipated the move and positioned themselves in the market accordingly. The broader economic stimulation from lower rates, while encouraging spending and investment, also raises inflation concerns, further bolstering the case for investing in tangible assets like steel that can serve as a hedge against the eroding value of currency.
Looking for a 20% gain +.
We have started to see Mill pricing start shifting upward after a series of decreases.
Iron Ore Futures ~ Snapshot TA / Coiling like a Steel RollIron Ore Futures coiling like a steel roll in a series of Lower Highs & Higher Lows since October 2022.
Break above 116.60 = Bullish momentum towards 134.85 (38.2% Fib Retracement)
Break below 99.40 = Bearish momentum towards 77.60 (78.6% Fib Extension)
Seasonality typically favours the Bulls running strong into end of year - we'll see if it still rings true this year, given China's current economic woes..
Boost/Follow appreciated.
Futures: SGX:FEF1! SGX:FEF2! COMEX:TIO1! COMEX:TIO2!
ASX: ASX:BHP ASX:RIO ASX:FMG ASX:MIN ASX:CIA
NYSE: NYSE:VALE
Update: Iron Ore Futures A technical update on the commodity.
- Unwinding from an overbought position on it's weekly chart. This follows a 'doji' candle formation for LAST week.
- This week we are seeing a further retracement at the previously identified supply zone.
- The $113 to $115 level is a potential target range.
Iron Ore FuturesIron Ore Futures: Trading at more than 2x it’s mean over 200 days + has rallied into it’s declining 200-day simple moving average. Note that the commodity has also rallied significantly over the short term with a gain of 50% off it’s late October 2022 lows.
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USD Breakdown - With pairs to keep an eye onIn this video I break down the dollar chart. I quickly go through some fundamental data that's set to come out this week and at the end I give you some trade ideas I'm keeping an eye on.
I hope you enjoy. Please feel free to add anything you'd like in the comments!