IO Weekly Technicals Review [2024/50]: Stimulus Rally Fizzles
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) expiring in Jan 2025 rose last week closing USD 1.95/ton higher by Friday.
SGX IO Futures opened at USD 102.85/ton on 09/Dec (Mon) and closed at USD 104.80/ton on 13/Dec (Fri).
Prices briefly touched a weekly high of USD 107.30/ton on 10/Dec (Tuesday) and a low of USD 102.55/ton on 09/Dec (Mon). It traded in a range of USD 4.75/ton during the week which was wider than the prior week.
Prices tested the R2 pivot point on 10/Dec (Tue) but failed to pass the level. Price maintained support above the R1 pivot point of 104.75 till the end of the week.
Volume peaked on 10/Dec (Tue) driven by the expanded stimulus announcement in China.
SGX Iron Ore Futures Fundamentals in Summary
IO started the week on a positive note with prices rallying 3% on 09/Dec (Mon) driven by news of expanded stimulus expected to arrive from the Central Economic Work Conference in China.
Despite the rally on 09/Dec (Mon), economic releases on the day showed CPI declining 0.6% MoM (-0.4% E and -0.3% P) during November. Annual CPI also decelerated to 0.2% (0.5% E and 0.3% P) suggesting that the economy continues to be plagued by low domestic consumption.
On 13/Dec (Fri), further economic data from China showed new loans decline 47% YoY to 580 billion yuan in November. Although the figure was 16% higher MoM, the annual decline shows low loan demand. Particularly, new housing and housing related loans remain subdued signaling a potential headwind to IO prices.
On 12/Dec (Thu), China officially announced it would increase the budget deficit, issue more debt, and loosen monetary policy to stimulate the economy and maintain a stable economic growth rate. There were also reports that Chinese policymakers were considering allowing the Yuan to weaken next year to combat punitive trade measures expected from the US.
Iron Ore imports to China fell 1.9% MoM in November to 101.862 million tons. The figure remains 3.9% higher YoY with the YTD figure 4.3% higher. Iron ore imports are expected to rebound in December.
Iron Ore portside inventories rose by 820k tons WoW to 146.66 million tons according to data from SMM. The increase was driven by a significant increase in port arrivals which offset a smaller increase in pickup volume. Maintenance may lead to a further buildup next week.
Based on seasonality, SGX IO Futures Jan contract trades 14.6% below its last 5-year average (USD 121.73/ton). Seasonal trends suggest a rally in the coming weeks.
Short-Term Moving Averages Signal Reversal of Bullish Trend
The 9-day moving average headed higher due to the rally at the start of last week. The price decline in the later part of the week led to a reversal as the 9-day MA is now curving downwards and approaching the 21-day moving average.
Long-Term Averages Signal Retest of 200-day MA
Price tested the 200-day moving average once again last week and managed to surpass it for some time before reversing and heading lower once again. Price remains well above the 100-day moving average which may provide support in case of a decline.
MACD Points to Fading Rally
Relative Strength Index (RSI) at 51.67 signals a neutral level. However, RSI has continued to trend lower since it signaled a crossover with its MA late last week. MACD is narrowing from its positive level and is close to marking a bearish crossover between the 12-day and 26-day MA which could signal a period of decline.
Volatility Rebounds from 1Y Low, Fibonacci 50% Signals Resistance
Volatility rebounded from its 1Y low last week to edge slightly higher to 19.19. Though, volatility still remains muted. Last week, prices retested the 50% Fibonacci level at USD 105.4/ton once more which continues to act as resistance.
Chart Signals Flat Top Pattern
The IO futures chart signals a flat top technical pattern with prices having tested the USD 107/ton level multiple times. The lower and of the range shows a widening channel which could suggest a lower low than previously seen in mid-November.
Hypothetical Trade Setup
Iron Ore prices surged early last week but gave up some gains by the end of the week. Prices retested its resistance levels once more but were rejected. Price also significantly lags the seasonal trend suggesting that the end-year seasonal rally may not materialize this year. Last week’s stimulus announcement failed to provide long-lasting momentum to the rally and prices are trending lower once more at the start of the week.
The declining flat top chart pattern suggests that prices could head lower this time around. This provides a favorable entry for a short position in Iron Ore. However, given significant support levels above that, it may be prudent to choose a slightly higher target.
We propose a hypothetical trade set up of selling SGX IO January Futures Contract at USD 105.00/ton with a stop at USD 108/ton and target at USD 100/ton resulting in reward-to-risk ratio of 1.67x. Each lot of SGX IO Futures Contract provides exposure to 100 tons of iron ore. For each lot, the hypothetical trade would result in gain of USD 500/lot ((105 – 100) x 100) while exposing the trade to a loss of USD 300/lot. This calculation excludes transaction costs comprising of clearing broker fees and exchange clearing fees. The SGX requires a minimum initial margin of USD 1,188/lot and a maintenance margin of USD 1,080/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.
SGX IO Futures opened at USD 102.85/ton on 09/Dec (Mon) and closed at USD 104.80/ton on 13/Dec (Fri).
Prices briefly touched a weekly high of USD 107.30/ton on 10/Dec (Tuesday) and a low of USD 102.55/ton on 09/Dec (Mon). It traded in a range of USD 4.75/ton during the week which was wider than the prior week.
Prices tested the R2 pivot point on 10/Dec (Tue) but failed to pass the level. Price maintained support above the R1 pivot point of 104.75 till the end of the week.
Volume peaked on 10/Dec (Tue) driven by the expanded stimulus announcement in China.
SGX Iron Ore Futures Fundamentals in Summary
IO started the week on a positive note with prices rallying 3% on 09/Dec (Mon) driven by news of expanded stimulus expected to arrive from the Central Economic Work Conference in China.
Despite the rally on 09/Dec (Mon), economic releases on the day showed CPI declining 0.6% MoM (-0.4% E and -0.3% P) during November. Annual CPI also decelerated to 0.2% (0.5% E and 0.3% P) suggesting that the economy continues to be plagued by low domestic consumption.
On 13/Dec (Fri), further economic data from China showed new loans decline 47% YoY to 580 billion yuan in November. Although the figure was 16% higher MoM, the annual decline shows low loan demand. Particularly, new housing and housing related loans remain subdued signaling a potential headwind to IO prices.
On 12/Dec (Thu), China officially announced it would increase the budget deficit, issue more debt, and loosen monetary policy to stimulate the economy and maintain a stable economic growth rate. There were also reports that Chinese policymakers were considering allowing the Yuan to weaken next year to combat punitive trade measures expected from the US.
Iron Ore imports to China fell 1.9% MoM in November to 101.862 million tons. The figure remains 3.9% higher YoY with the YTD figure 4.3% higher. Iron ore imports are expected to rebound in December.
Iron Ore portside inventories rose by 820k tons WoW to 146.66 million tons according to data from SMM. The increase was driven by a significant increase in port arrivals which offset a smaller increase in pickup volume. Maintenance may lead to a further buildup next week.
Based on seasonality, SGX IO Futures Jan contract trades 14.6% below its last 5-year average (USD 121.73/ton). Seasonal trends suggest a rally in the coming weeks.
Short-Term Moving Averages Signal Reversal of Bullish Trend
The 9-day moving average headed higher due to the rally at the start of last week. The price decline in the later part of the week led to a reversal as the 9-day MA is now curving downwards and approaching the 21-day moving average.
Long-Term Averages Signal Retest of 200-day MA
Price tested the 200-day moving average once again last week and managed to surpass it for some time before reversing and heading lower once again. Price remains well above the 100-day moving average which may provide support in case of a decline.
MACD Points to Fading Rally
Relative Strength Index (RSI) at 51.67 signals a neutral level. However, RSI has continued to trend lower since it signaled a crossover with its MA late last week. MACD is narrowing from its positive level and is close to marking a bearish crossover between the 12-day and 26-day MA which could signal a period of decline.
Volatility Rebounds from 1Y Low, Fibonacci 50% Signals Resistance
Volatility rebounded from its 1Y low last week to edge slightly higher to 19.19. Though, volatility still remains muted. Last week, prices retested the 50% Fibonacci level at USD 105.4/ton once more which continues to act as resistance.
Chart Signals Flat Top Pattern
The IO futures chart signals a flat top technical pattern with prices having tested the USD 107/ton level multiple times. The lower and of the range shows a widening channel which could suggest a lower low than previously seen in mid-November.
Hypothetical Trade Setup
Iron Ore prices surged early last week but gave up some gains by the end of the week. Prices retested its resistance levels once more but were rejected. Price also significantly lags the seasonal trend suggesting that the end-year seasonal rally may not materialize this year. Last week’s stimulus announcement failed to provide long-lasting momentum to the rally and prices are trending lower once more at the start of the week.
The declining flat top chart pattern suggests that prices could head lower this time around. This provides a favorable entry for a short position in Iron Ore. However, given significant support levels above that, it may be prudent to choose a slightly higher target.
We propose a hypothetical trade set up of selling SGX IO January Futures Contract at USD 105.00/ton with a stop at USD 108/ton and target at USD 100/ton resulting in reward-to-risk ratio of 1.67x. Each lot of SGX IO Futures Contract provides exposure to 100 tons of iron ore. For each lot, the hypothetical trade would result in gain of USD 500/lot ((105 – 100) x 100) while exposing the trade to a loss of USD 300/lot. This calculation excludes transaction costs comprising of clearing broker fees and exchange clearing fees. The SGX requires a minimum initial margin of USD 1,188/lot and a maintenance margin of USD 1,080/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.
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