Cliffs Natural Resources Inc (NYSE:CLF) bulls have been scared by the downgrade coming from Axiom Capital yesterday, resulting in a selloff. The loss of 7.66% was not only accompanied by a volume of 12 million, double the average volume of 6 million, it also brought a fresh 52-week low at $5.64.
The Chinese economic slowdown has resulted in a severe bear market in nearly all the base metals and Iron Ore has come down to a 6 year low. The supply of the metal outstrips the demand by a wide margin at this point as the country eating up nearly 60% of the production is unable to continue doing the same. Coupled with the very poor result seen in the last two quarters, the global scenario doesn’t boost the confidence in Cliffs Natural Resources Inc (NYSE:CLF) in any way. The bear market in the Iron Ore looks far from over and that may affect this stock to a great extent.
Technically, the stock entered a bear market as soon as it was listed. The life high around $21 levels was hit in just 2-3 weeks and the rest has been downhill only. The entire drop from $21 to $6 levels have been punctuated by two intermediate corrections of $4 in magnitude. This similarity of corrections produces an order in the price action, as evident from the big channel. The last test of the upper boundary has signaled the end of the time correction and resulted in a sharp drop in the last two sessions.
Only a break above the upper boundary in the coming days may give the initial sign of a major trend change and the confirmation would come on a rally of $5 in magnitude. Till then, investor’s better stay away from the stock as more new lows can’t be discarded.