Evening Wrap: ASX 200 dragged lower by iron ore miners & energy, short covering rally in lithium fizzles

The S&P/ASX 200 closed 6.1 points lower, down 0.08%.

Another sharp fall in the price of iron ore in Asia today put pressure on the share prices of BHP Group (BHP), Rio Tinto (RIO) and Fortescue (FMG).

Energy stocks were also lower, led by a massive fall in Strike Energy (STX) as it released what appears to be the second disappointing South Erregulla update in a week.

Last week's rally in several beaten down lithium and battery metals stocks has fizzled, possibly triggered by some heavy selling into Sayona Mining's (SYA) long-awaited DFS for it's Molban Lithium Project.

Let’s dive in!

Markets

ASX 200 Session Chart

The S&P/ASX200 (XJO) finished points lower at 7,659.0, 0.33% from its session low and just 0.16% from its high. In the broader-based S&P/ASX 300 (XKO), advancers narrowly lagged decliners by 127 to 137.

The Communication Services (XTJ) (+1.47%) sector was the best performing sector today, likely in response to strong gains by sector leaders Seek Ltd (SEK) (+3.27%), CAR Group (CAR) (+2.61%) and REA Group Ltd (REA) (+2.43%).

Also doing well today was the Real Estate Investment Trusts (XPJ) (+0.89%) sector as HMC Capital Ltd (HMC) (+9.59%) soared on better than expected first half FY24 results, and sector heavyweight Goodman Group (GMG) (+2.24%) continued to advance after its better than expected results last week.

Doing it tough today were the usual suspects, the not so dynamic duo of Resources (XJR) (-1.17%) and Energy (XEJ) (-0.91%). In resources, irone ore majors BHP Group Ltd (BHP)(-1.09%), Rio Tinto (RIO) (-2.23%), and Fortescue (FMG) (-0.67%) led the way lower as iron ore suffered its second heavy day of selling since traders returned following Chinese New Year Holiday celebrations.

ChartWatch

Iron Ore Singapore $US/t

Source: TradingView

Iron ore on Singapore's SGX hit a three-month low as data showed rising inventories at Chinese ports and a continued decline in steel mill profitability. Iron ore's seasonal strength through the back half of the year also usually gives way to seasonal weakness around this time. Also dimming the near-term outlook for the iron ore price, the Chinese property market continued to contract in December, and we're yet to see any meaningful policy measures from Beijing to stimulate construction activity.

From a technical perspective, it is concerning to see the current candle probing below several key areas of historical demand, as well as the old breakout level of 123.75. A further close below the long term uptrend ribbon (dark green zone) would confirm for me that the supply side has regained control of the iron ore price.

BHP Group (ASX: BHP)

BHP's chart demonstrates little impetus to go up or down

BHP's chart demonstrates little impetus to go up or down. It appears stuck around the long term trend ribbon, and above the key historical demand zone between 41.66 and 43.15.

A close below support at 44.74 would confirm for me that the supply-side is back in control of the BHP price, and therefore increase the likelihood of a probe of previous support. On the other hand, I would need to see a close above the historical excess supply zone at 47.81 before I could be convinced the demand-side is back in control.

Rio Tinto (ASX: RIO)

Better than BHP, but not shooting the lights out!

Rio has fared much better than BHP, but from a technical perspective it's far from shooting the lights out! Lower peaks at 131.98 and 133.83 signal excess supply is building in the short term. This is manageable for the medium term trend while historical demand at 125.19 holds.

125.19 is the key demand point, and I observe several clear demand-side candles since the 18 Jan trough. There's every chance it can hold, and even if the price closes below this point, there's still plenty indications of previous historical demand which could limit Rio's downside price action.

The long term uptrend ribbon remains very much intact, and could also provide an area of dynamic support. Like BHP, Rio's technicals perhaps point to a greater likelihood of further sideways grind. A close above 131.98, but preferably above 133.83 is required to signal the demand-side is back in control of the Rio price.

Fortescue (ASX: FMG)

FMG appears is stuck in the middle, but the short term uptrend is moderating

A little bit "ditto" here, but that's probably unsurprising! The short term uptrend is clearly moderating versus a very strong and well-established long term uptrend.

Let's say demand is holding while the price continues to close above 26.46 and supply remains intact while the price continues to close below 29.95. In between, it's going to be a grind.

Economy

Today

• RBA February Meeting Minutes

  • “Uncertainty about the outlook for the economy was high”

  • "Members also observed that the costs of inflation not returning to target within the envisaged time frame were potentially very high"

  • Easing goods inflation has driven drop in inflation so far, "any further slowing in this component was likely to be modest...By contrast, services price inflation remained high and had declined only a little”

  • "Given this, members agreed that it was appropriate not to rule out a further increase in the cash rate target."

Later this week

Wednesday

• AU Wage Price Index q/q: forecast +0.9% vs +1.3% previous

Thursday

• USA FOMC Meeting Minutes

Friday

• USA Flash Manufacturing PMI: forecast 50.5 vs 50.7 previous

• USA Flash Services PMI: forecast 52.1 vs 52.5 previous

Latest News

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Interesting Movers

Trading higher

• +29.7% Bravura Solutions (BVS) - Appendix 4D and Half Year Financial Report, rise is consistent with prevailing short and long term uptrends

• +13.4% Nuix (NXL) - Delayed positive response to yesterday's Half Yearly Report and Accounts

• +11.7% McMillan Shakespeare (MMS) - Half Year Accounts, rise is consistent with prevailing short and long term uptrends

• +10.2% ARB Corporation (ARB) - Appendix 4D and HY24 Financial Report, rise is consistent with prevailing short and long term uptrends

• +9.6% HMC Capital (HMC) - Appendix 4D and HY24 Financial Report, rise is consistent with prevailing short and long term uptrends

• +8.7% Reliance Worldwide Corporation (RWC) - Continued positive response to yesterday's Appendix 4D and Interim Financial Report, rise is consistent with prevailing short and long term uptrends

• +8.3% Pro Medicus (PME) - Notification of buy-back, hold of and rally from long term uptrend ribbon

• +7.4% RPMGlobal Holdings (RUL) - Continued positive response to yesterday's Appendix 4D - Half Year Results, rise is consistent with prevailing short and long term uptrends

• +7.2% Integral Diagnostics (IDX) - Half Yearly Report and Accounts

• +7.1% Perenti (PRN) - Half Yearly Report and Accounts

• +6.6% Imdex (IMD) - 2 x becoming substantial shareholder notices (Yarra Capital & Morgan Stanley), continued positive response to yesterday's Half Yearly Report and Accounts

• +6.1% Playside Studios (PLY) - No news, possible positioning ahead of first half results due Thu 22 Feb

• +6.0% Suncorp Group (SUN) - Suncorp Welcomes Tribunal Decision on Suncorp Bank Sale

• +5.6% Netwealth Group (NWL) - Half Year Accounts and Appendix 4D

• +5.4% Temple & Webster Group (TPW) - Continued positive response to 13 Feb Half Yearly Report and Accounts, as well as several recent broker upgrades and price target increases

• +5.2% Austal (ASB) - Likely positioning ahead of Half Year Results due Friday 23 Feb, rise is consistent with prevailing short and long term uptrends

• +4.9% Hub24 (HUB) - HUB24 1HFY24 Interim Financial Report and Appendix 4D

• +4.8% SRG Global (SRG) - Appendix 4D & 1H FY24 Half Year Report

• +3.7% APM Human Services International (APM) - Continued positive response to yesterday's Response to Press Speculation

Trading lower

-25.9% Strike Energy (STX) - South Erregulla Update, continued negative response to 13 Feb South Erregulla Update

-19.6% The Star Entertainment Group (SGR) - Inquiry update & Deferral of H1 FY24 results announcement

-10.5% Chalice Mining (CHN) - No news, short covering over? Fall is consistent with prevailing short and long term downtrends

-9.8% Tourism Holdings Rentals (THL) - FY24 Interim Financial Statements

-9.7% Sims (SGM) - Half Yearly Report and Accounts

-7.8% Sayona Mining (SYA) - Moblan Lithium Project Definitive Feasibility Study. Short covering over? Buy the rumour and sell the fact? The selling here probably had a negative influence on the recent short covering rally in several of SYA's peers. At the end of the day, the fall is consistent with prevailing long term downtrend.

-7.8% Sonic Healthcare (SHL) - Half Yearly Report and Accounts, closed below long term downtrend ribbon

-7.8% KMD Brands (KMD) - KMD Brands Trading Update, fall is consistent with prevailing short and long term downtrends

-6.3% Liontown Resources (LTR) - No news, short covering over? Fall is consistent with prevailing short and long term downtrends

-5.4% Coronado Global Resources Inc. (CRN) - 2023 Full Year Results

-4.8% Resimac Group (RMC) - No news, possible positioning ahead of half year results on Tuesday 27 Feb

-4.8% Latin Resources (LRS) - No news, short covering over? Fall is consistent with prevailing long term downtrend

-4.3% Core Lithium (CXO) - No news, short covering over? Fall is consistent with prevailing short and long term downtrends

-4.1% Universal Store Holdings (UNI) - No news, possible positioning ahead of first half results due Thu 22 Feb

-4.0% Lendlease Group (LLC) - Continued negative response to yesterday's Half Yearly Report and Accounts

Broker Notes

• The A2 Milk Company (A2M)

  • Retained at neutral at Macquarie; Price Target: $5.50 from $4.40

  • Downgraded to sell from outperform at CLSA; Price Target: $4.60 from $4.40

  • Retained at overweight at Barrenjoey; Price Target: $6.80 from $6.00

  • Downgraded to neutral from buy at Citi; Price Target: $5.75 from $4.81

  • Downgraded to market-weight from overweight at Wilsons; Price Target: $5.85 from $5.47

  • Downgraded to hold from add at Morgans; Price Target: $6.05 from $5.40

• Ampol (ALD)

  • Retained at overweight at Barrenjoey; Price Target: $38.52 from $35.13

  • Retained at hold at Jefferies; Price Target: $37.00 from $38.00

  • Retained at outperform at Macquarie; Price Target: $42.50 from $38.15

  • Retained at neutral at UBS; Price Target: $34.40

  • Downgraded to neutral from positive at E&P; Price Target: $39.00 from $36.00

• APM Human Services International (APM) upgraded to buy from hold at Bell Potter; Price Target: $1.50

• Abacus Storage King REIT (ASK) downgraded to neutral from overweight at JPMorgan; Price Target: $1.25

• ASX (ASX) downgraded to underperform from outperform at CLSA; Price Target: $68.40 from $70.30

• Bendigo & Adelaide Bank (BEN) downgraded to hold from buy at Jefferies; Price Target: $10.00

• Bluescope Steel (BSL)

  • Retained at at UBS; Price Target: $25.50 from $25.80

  • Retained at at Jefferies; Price Target: $21.63 from $20.67

  • Downgraded to neutral from overweight at JP Morgan; Price Target: $23.00 from $24.00

  • Retained at at Macquarie; Price Target: $25.00 from $24.00

  • Retained at at Barrenjoey; Price Target: $23.50 from $25.00

• CAR Group (CAR) upgraded to buy from neutral at Goldman Sachs; Price Target: $39.40 from $33.00

• Chalice Mining (CHN) initiated speculative buy at Argonaut Securities; Price Target: $2.20

• Cochlear (COH)

  • Retained at neutral at Barrenjoey; Price Target: $291.00 from $285.00

  • Retained at hold at Jefferies; Price Target: $303.50 from $292.00

  • Retained at neutral at JP Morgan; Price Target: $295.00

  • Retained at underweight at Morgan Stanley; Price Target: $258.00

  • Upgraded to sector perform from underperform at RBC Capital Markets; Price Target: $288.00 from $225.00

  • Downgraded to neutral from positive at E&P; Price Target: $330.00 from $315.00

• Charter Hall Retail REIT (CQR) downgraded to neutral from overweight at JPMorgan; Price Target: $3.90

• Cleanaway Waste Management (CWY)

  • Retained at overweight at JP Morgan; Price Target: $3.00 from $2.95

  • Retained at outperform at Macquarie; Price Target: $3.10 from $3.00

  • Retained at neutral at UBS; Price Target: $2.70 from $2.55

  • Retained at positive at E&P; Price Target: $2.97 from $2.89

  • Retained at neutral at Barrenjoey; Price Target: $2.80 from $2.90

• Dicker Data (DDR) initiated buy at Citi; Price Target: $12.90

• Deterra Royalties (DRR) downgraded to sell from underperform at CLSA; Price Target: $4.95

• Goodman Group (GMG) downgraded to hold from add at Morgans; Price Target: $29.00 from $24.50

• GPT Group (GPT) upgraded to overweight from neutral at JPMorgan; Price Target: $4.90 from $4.80

• GWA Group (GWA)

  • Downgraded to outperform from buy at CLSA; Price Target: $2.70 from $2.15

  • Downgraded to neutral from overweight at JPMorgan; Price Target: $2.70 from $2.65

• Insurance Australia Group (IAG)

  • Retained at underperform at CLSA; Price Target: $5.95 from $5.70

  • Retained at overweight at JP Morgan; Price Target: $6.30 from $6.20

  • Retained at equalweight at Morgan Stanley; Price Target: $5.45 from $5.50

  • Retained at overweight at Jarden; Price Target: $6.40 from $6.15

  • Retained at neutral at UBS; Price Target: $6.00

• Imdex (IMD) upgraded to hold from sell at Bell Potter; Price Target: $1.75 from $1.50

• Inghams Group (ING) upgraded to outperform from neutral at Macquarie; Price Target: $4.20 from $4.50

• Lendlease Group (LLC)

  • Downgraded to neutral from buy at UBS; Price Target: $7.10 from $8.50

  • Upgraded to outperform from underperform at CLSA; Price Target: $7.05 from $8.16

  • Retained at underweight at Barrenjoey; Price Target: $7.00 from $7.30

  • Downgraded to neutral from overweight at JP Morgan; Price Target: $7.50 from $9.00

• Macquarie Group (MQG) downgraded to hold from add at Morgans; Price Target: $189.40 from $182.80

• Nuix (NXL) upgraded to overweight from equal-weight at Morgan Stanley; Price Target: $2.50 from $1.25

• oOh!media (OML) upgraded to overweight from neutral at JPMorgan; Price Target: $1.80 from $1.45

• Orora (ORA)

  • Retained at overweight at Jarden; Price Target: $3.20 from $3.30

  • Retained at outperform at Macquarie; Price Target: $3.17 from $3.30

  • Retained at neutral at Barrenjoey; Price Target: $2.85 from $2.80

  • Retained at hold at Jefferies; Price Target: $2.90 from $2.75

  • Retained at neutral at UBS; Price Target: $2.90 from $2.84

• QBE Insurance Group (QBE)

  • Retained at overweight at Barrenjoey; Price Target: $18.90 from $18.20

  • Retained at buy at UBS; Price Target: $20.00

  • Retained at outperform at Macquarie; Price Target: $17.10 from $16.60

  • Retained at overweight at Morgan Stanley; Price Target: $19.80 from $20.00

• Reliance Worldwide Corporation (RWC)

  • Upgraded to add from hold at Morgans; Price Target: $5.25 from $4.20

  • Retained at overweight at Barrenjoey; Price Target: $5.25 from $5.00

  • Retained at buy at Jefferies; Price Target: $5.40 from $3.96

  • Retained at overweight at JP Morgan; Price Target: $5.70 from $5.10

  • Upgraded to overweight from neutral at Jarden; Price Target: $5.30 from $4.10

  • Upgraded to add from hold at Morgans; Price Target: $5.25 from $4.20

• Sandfire Resources (SFR) initiated hold at Argonaut Securities; Price Target: $7.20

• Star Entertainment Group (SGR) downgraded to outperform from buy at CLSA; Price Target: $0.62 from $0.92

• Southern Cross Electrical Engineering (SXE) initiated buy at Unified Capital Partners; Price Target: $1.35

• Westpac Banking (WBC) downgraded to underweight from equal-weight at Morgan Stanley; Price Target: $21.70 from $20.90

• Woodside Energy Group (WDS) downgraded to neutral from buy at Goldman Sachs; Price Target: $32.40

• Wesfarmers (WES) upgraded to neutral from sell at Citi; Price Target: $61.00 from $45.00

• Whitehaven Coal (WHC) upgraded to hold from sell at Bell Potter; Price Target: $7.65

Scans