At the time of writing, shares of Fortescue Metals Group Ltd [ASX:FMG] are down by 4.54% for the day, to $6.65 per share.
Why Fortescue Metals Group’s share price is slipping?
Over the last few weeks, Fortescue Metals Group’s share price skyrocketed following the Brumadinho dam burst in Brazil ― the country’s worst mine disaster on record. Take a look at FMG’s share price chart below:
Source: CommSec
FMG shares ripped higher following the mining incident in Brazil. The share price run continued with the latest earnings report published last week. That’s good news for shareholders. But, given the strong run-up, the share price has started to roll over. This should be expected after a significant and unexpected share price melt-up.
What now for Fortescue Metals Group?
Technically speaking, FMG’s share price seems to have peaked. The iron ore ― the main contributor to FMG’s earnings ― is the leading indicator for the company. It’s started to roll over in recent days:
Source: tradingview.com
The iron ore price skyrocketed from December and hit a high earlier in the month. That’s mostly why FMG’s share price outperformed the market. That said, iron ore is clearly pulling back and that’s putting pressure on FMG’s share price. The market priced large expectations into the company, which led to extreme optimism.
Don’t be surprised to see FMG’s share price reverse sharply in the days ahead. Considering the above news is now priced into the market, traders are starting to take profits. In my view, if the iron ore price continues to fall, FMG’s share price could potentially fall back to $5 within the coming weeks.
Regards,
Jason Stevenson,
Resources Analyst, Money Morning
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