The last several weeks has seen Fortescue (FMG) bounce strongly from nearly $4.50 to over $5.80. Some analysts are getting nervous with the iron ore price up here, but is there even more upside for FMG?

We have seen some huge moves in the price of iron ore during the last 12 months. Measured in $US/tonne, we’ve seen it rally from under $50 to over $80 earlier this year. It dropped back to the low $50’s in May and is now pushing above $70 again. In the last several months, FMG fell from about $7.20 to almost $4.50. Now it is approaching $6 again. Despite this big rally in FMG, the charts show even more upside potential.

FMG has formed an inverse head and shoulders on the daily chart. Yesterday it broke above the neckline. If we extrapolate out to an initial target, we get upside to about $6.40. In the next day or two we will get some resistance at $5.82 so for a better risk/reward payoff, some traders may wish to wait for a down day or two, placing a stop just under $5.50 while eyeing upside towards $6.40.

Michael Gable is managing director of Fairmont Equities.

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