Cliffs Natural Resources Inc (NYSE:CLF) rallied by 8.45% with the volume surging to 41 million against the daily average of 10 million only. The stock opened with a sharp gap up and despite some profit booking in the latter hours, managed to protect most of the intraday gains.
It was the second consecutive day of rallies for Cliffs Natural Resources Inc (NYSE:CLF) that came on the back of the world’s largest mining company BHP Billiton Limited (ADR) (NYSE:BHP) announcing plans to reduce its expansion. The global markets are suffering from an oversupply of iron ore, driving down the price of the metal to the ground but till now, the biggest miners like BHP and Vale SA (ADR) (NYSE:VALE) have been resolute in their stance to increasing productions. This latest announcement by BHP may alleviate some concerns about the ever increasing supply overwhelming demand.
Technically, the stock has demonstrated one of the most destructive bear markets in the recent years. The stock topped out at $102 in 2011 and then it took exactly 4 years to test the low of $4 levels. The stock had made a major swing high at $4 in 2002 but after 2003, didn’t see that level till now. Some buyers are visible around $4 but the quality of the bounce is not above doubts as the moves overlap too much, suggesting inherent weakness. If the Friday high of $6.35 is not crossed very soon, then another new low can be easily expected, which will be confirmed on a break below the short term support at $5.
On the other hand, the bulls may expect any new low around $4 or even $3 levels to form a major bottom as the recent price action has formed a bullish pattern called Falling Wedge that implied loss of bearish momentum.