Short sellers of Fortescue Metals Group Limited (ASX: FMG) will be relieved today with the miner's shares falling 8.8%, reversing some of the remarkable gains the company's shares have achieved over the last fortnight.
Indeed, Fortescue Metals Group was one of Australia's most shorted companies at the end of September, meaning that many investors were betting on its share price falling even further.
This was largely due to expectations that commodity prices, including iron ore, would continue to deteriorate due to concerns regarding China's economic growth.
Since hitting a low of $1.66 on 29 September 2015 however, the shares have skyrocketed, outperforming not only the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) but most of the big-name companies within the resources sector as well.
They're currently at $2.19 after hitting a high of $2.43 yesterday a remarkable 46.4% turnaround over the fortnight.
The gains from the resources sector helped the market to recover some of its recent losses with the ASX 200 even recording its biggest weekly gain in four years last week.
This can largely be attributed to the revised expectations of a number of experts who now believe the commodities rout may have found a bottom.
However, investors were reminded overnight that predicting commodity price movements is not that simple. Oil prices plunged 5%, resulting in heavy falls across the entire sector. BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are also down 1.5% and 1.7%, respectively.
Should you buy? Investors should be wary when approaching the resources sector. Although some analysts are becoming more confident, there are still strong headwinds facing the industry and commodity prices could certainly fall further especially if demand from China continues to decline.
Although Fortescue's shares remain well below their all-time high levels (around $13 in 2008), there is no reason to suggest they won't fall any further. You may want to give this one a miss.
