ChartWatch: ASX iron ore & coal stocks at critical juncture, BHP, RIO, FMG, WHC, NHC, YAL & more

In the last few Evening Wraps I’ve charted the progress of two key commodities for the Australian economy, iron ore and coking coal (also known as metallurgical coal). These two commodities are inextricably linked due to the fact they’re the two key components in steel production.

Veteran investors in ASX commodity stocks know all too well about the commodity price cycle, and for most of 2024, the prices of iron ore and coking coal have been in a steady decline. From a technical standpoint, the charts of each commodity, as well as the stocks which produce them, are at critical junctures.

Let’s check up on these charts to determine whether the current cyclical downturn has more to run or if it’s about to turn.

Iron Ore SGX

Seasonal factors are at play in iron ore

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 7 Aug 2023 trough low @ 99.20 / 4 Mar trough low @ 111.95

Commentary: The iron ore price is highly seasonal, and weakness around this time of the year is no surprise (we did warn you!). April may provide some respite from the selling, but May is typically the second worst month for iron ore before a June-July rally.

Iron ore prices are highly seasonal

The candlestick chart shows a well-established short term downtrend and a long term trend which is very much transitioning from up to down. When you see the price break below the dynamic support of the long term uptrend, rally back up to retest it, and fail, you can call the transition to a long term downtrend on a price action basis.

More specifically on the price action, lower peaks and lower troughs demonstrate the supply side is in control – looking to actively sell into any rally. The demand side continues to drop its bids in anticipation of lower prices.

The candles are strong proponents of supply-side control.

The next key historical demand point is 99.20, and failing this, it’s 94.

The key historical supply point to contend with is 111.95. In the absence of a close above this point (but preferably a close above the long term trend ribbon), a return to demand-side candles and rising peaks and rising troughs are required to confirm renewed demand-side control.

BHP Group (ASX: BHP)

How much do you trust the bottom of the BHP trading range?

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 1 Jun 2023 trough low @ 41.66 / 1 Mar peak high @ 45.02

Commentary: BHP’s chart shows a similar well-established short term downtrend and a long term trend which is very much transitioning from up to down. It also shows the characteristic test-break-retest-fail pattern with respect to the long term uptrend ribbon.

Price action and candles demonstrate clear supply-side control.

The next key historical demand point is 41.66, and failing this, 40.83.

The key historical supply point to contend with is 43.40, and failing this, 45.02.

The big question here is whether investors simply trust what has proven to be a massively reliable historical demand zone between 41.66 and 43.15.

As a trend follower, this is not my style, but I can permit aggressive setups at major historical demand zones in the absence of confirming short and long term uptrends if the price action and candles suggest demand side control has returned.

In this case, it would be crucial to see a return to demand-side candles and rising peaks and rising troughs. Even better, would be a close above 43.40, but preferably a close 45.02 and the long term trend ribbon.

Rio Tinto (ASX: RIO)

There’s a tinge of ditto here…

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 8 Sep 2023 trough low @ 110.37 / 5 Mar peak high @ 126.60

Commentary: There’s a tinge of ditto here with 110.37 providing clear historical support. The rest of the technicals demonstrate sufficient supply-side control to suggest the price may test it.

Again, only a return to demand-side candles and rising peaks and rising troughs could drag aggressive technicians into new risk positions, while the more conservative would wait for confirming short and long term trends or at least a close above 126.60.

Fortescue (ASX: FMG)

FMG is the only iron ore stock studied here which remains in a long term uptrend

ST/LT Trends: ⬇️ / ⬆️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 26 Jul 2023 trough low @ 23.87 / 21 Feb peak high @ 26.77

Commentary: FMG does not have the benefit of such clearly defined historical demand zones like BHP and RIO, but 23.87 and 24.09 are likely to provide some excess demand.

Clearly FMG is the best out of the three so far in terms of maintaining its long term uptrend, but the short term downtrend is very well entrenched.

Poor price action (lower peaks and lower troughs) and predominantly supply-side candles suggest firm supply-side control.

23.87-24.09 is the key demand zone now, and failing this, the next level down is sub-22.

Again, only aggressive technicians would consider new risk positions on a return to demand-side candles and rising peaks and rising troughs, while the more conservative would wait for confirming short and long term trends or at least a close above 26.77.

Champion Iron (ASX: CIA)

A more recent downturn, but a well-established one…

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 18 Sep 2023 trough low @ 6.70 / 1 Mar peak high @ 7.98

Commentary: The establishment of the short term trend is relatively more recent here, but it’s just as set as any of the others. Price action and candles confirm the supply-side is in control.

We are smack bang on the long term trend ribbon, and technicians should monitor for the classic test-break-retest-fail pattern. If this occurs, 6.70 is the next historical point of demand.

Again, only aggressive technicians would consider new risk positions on a return to demand-side candles and rising peaks and rising troughs, while the more conservative would wait for confirming short and long term trends or at least a close above 7.98.

Coking Coal Futures SGX

Iron ore + coking coal = steel

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: N/a

Key Support / Resistance: 14 Aug peak high @ 255 / 9 Nov 2023 trough low @ 297

Commentary: The short term trend is down, well established, and looks to be rolling hard. The long term trend has transitioned to neutral from up. Importantly, the price has dipped below the dynamic support of the long term uptrend ribbon. When this occurs the long term uptrend ribbon tends to flip to offer dynamic resistance.

The rally from June-October 2023 was so fluid, it created few major areas of historical support/resistance which we can use as potential demand points during the current decline. Possibly 255 (from August-September), but also possibly all the way back to 220.

Whitehaven Coal Ltd (ASX: WHC)

Unfortunately, there’s little good news in the charts of coal stocks

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 21 Feb trough low @ 6.68 / 7 Mar peak high @ 7.21

Commentary: Unfortunately, there’s little good news in the charts of coal stocks – more clear signs of supply side control.

For WHC, the candles are perhaps the most telling, just a wall of black. For me, this smacks of programmed sell orders meeting a clear lack of motivated demand.

The characteristic test-break-retest-fail pattern around the long term trend ribbon is further evidence of high-conviction supply-side control.

6.68 is the closest point of historical demand, but failing this, 6.02 and 5.63 are the next most-likely key levels.

In the absence of what would be a most surprising return to demand-side candles and rising peaks and rising troughs, only a close above the long term trend ribbon would signal the demand-side has returned to control.

New Hope Corporation (ASX: NHC) 

The strongest showing by the demand-side out of any Top 10 ASX uranium stock

ST/LT Trends: ⬇️ / ⬇️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 21 Feb trough low @ 4.20 / 4 Mar peak high @ 4.86

Commentary: There’s plenty of ditto here, so let’s just do the main points. Trends, price action, and candles all indicate clear supply-side control.

4.20 is the key historical demand point and 4.86 is the key historical supply point.

Demand-side candles and a return to higher peaks and higher troughs are required to signal demand-side control, and in the absence of these factors, at least a close above the long term downtrend ribbon.

Yancoal Australia Ltd (ASX: YAL)

A dividend is at play in the Yancoal chart

ST/LT Trends: ⬆️ / ⬆️

Price action: 📈

Candles: ⬜⬛

Key Support / Resistance: 19 Feb tough low @ 5.47 / 5 Mar peak high @ 6.33

Commentary: Don’t mind the gap! That’s a 32.5 cent dividend, fully franked. It does complicate the technicals, though.

Dividends are capital returns, not demand-supply events, and so should be accounted for by the technical analyst. This is difficult (because you have to use your imagination) and defining relevant key support/resistance points can also be tricky.

Generally, dividends wash out of the technicals eventually, and it’s important in all cases to try to answer the basic question: Who is in control of the price, the demand-side or supply-side?

Here, I’d say there’s enough evidence to suggest the demand-side is still in control. Trends are up-side oriented, and the price action is likely rising peaks and rising troughs when accounting for the dividend.

5.47 is a key area of historical demand now, and below this, 5.15. There’s not much else I can provide at this point, but be sure to keep an eye out for usual the tell-tale signs of excess demand in both candles and price action.

Coronado Global Resources (ASX: CRN)

The supply-side looks like they’re well in control here

ST/LT Trends: ⬇️ / ⬇️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 21 Feb trough low @ 0.105 / 2 Feb peak high @ 0.145

Commentary: The supply-side looks like they’re well in control here. Well-established short and long term downtrend ribbons, lower peaks and troughs, and supply-side candles prevail.

There’s likely nothing to see here until the demand side can confirm they’ve regained control by forcing a close above 1.425, or by a return to demand-side candles and rising peaks and rising troughs.

1.055 (not shown in chart) is the next key historical demand point lower down.

Stanmore Resources (ASX: SMR)

The SMR technicals are starting to exhibit all of the tell-tale signs of supply-side control

ST/LT Trends: ⬇️ / ➡️

Price action: 📉

Candles: ⬛

Key Support / Resistance: 1 Mar trough low @ 3.18 / 26 Feb peak high @ 3.61

Commentary: The SMR technicals are starting to exhibit all of the tell-tale signs of supply-side control. A well established short term downtrend is evident and look at how well the short term trend ribbon is capping upside price movement.

Add in falling peaks and falling troughs, and very clearly supply-side candles.

The SMR chart also appears to be in the midst of the classic test-break-retest-fail pattern around the long term trend ribbon which is the death knell for a long term uptrend.

3.18 is the most important point of historical demand, and failing this, 3.08.

3.61 is the key supply point, and in the absence of a return to demand-side candles and rising peaks and rising troughs, a close above this level is required to signal a return to demand-side control.

Carl’s Technical Analysis Methodology Key

Trends (ST Trend ribbon: 21 & 34 EMAs || LT Trend ribbon: 144 & 233 EMAs)

⬆️ = Uptrend, the ribbon is rising indicating a higher probability the market is in a general state of excess demand

⬇️= Downtrend, the ribbon is declining indicating a higher probability the market is in a general state of excess supply

➡️ = No trend, the ribbon is flattening indicating a higher probability the market is in equilibrium

Price Action

📈 = Rising peaks and rising troughs indicating buy-the-dip activity and supply removal (i.e., indicating a higher probability market is in a general state of excess demand)

📉 = Falling peaks and falling troughs indicating sell the rally activity and demand removal (i.e., indicating a higher probability market is in a general state of excess supply)

⬅️➡️ = Neither of the above scenarios, market price action is indecisive

Candles

⬜ = Predominantly demand-side candles in the recent past, i.e., white bodies and or downward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess demand)

⬛ = Predominantly supply-side candles in the recent past, i.e., black bodies and or upward-pointing shadows (i.e., indicating a higher probability market is in a general state of excess supply)

⬜⬛ = Mixed, i.e., indicating no discernible trend towards demand-side or supply-side candles in the recent past