Although the title of this article sounds more like the title of a Clint Eastwood spaghetti western, it is apropos for what Terex Corp. (NYSE:TEX) has to offer in the way of a quick trade. Terex Corp does not trade very many blocks. When they do trade blocks the blocks are most typically the controlling type which are in the 200K to 300K share range. Control blocks are utilized to maintain and or continue a trend. The blocks in the matrix below are more characteristic of trend reversal blocks. Not simply because of their size but where they present themselves within the price structure. I have indexed these blocks on the chart below to help illustrate their importance.
Terex Corp is in the same industry group as Caterpillar (NYSE:CAT) and it should come as no surprise that I put a buy rating on Caterpillar on May 18 in my article Caterpillar Set For A Short Term Bounce. This recommendation is not based in any way on global growth or contraction or anything of that nature. It is solely based on what I suspect is happening in the Designated Market Makers book of orders and the floor of the exchange.
With regard to the block of 3,225,000 shares which traded on June 6 at $17.85. Notice that this block traded well after the close near the highs of the day. This indicates that it is a short sale and that the subsequent decline is no accident. The price was dropped for the three consecutive days following that trade and I suspect it was to cover the short position.
The large blocks notwithstanding, the heavy aggregate volume indicates that much of the float has been captured. This will probably facilitate an advance without bringing on additional selling pressure when Terex Corp reaches the $21.50 range which is where I suspect many investors got on board expecting a technical bounce off of support.
I believe it is very likely (but not certain) that once that level is approached and selling pressure increases from the investors who would be satisfied to just get their money back, we could see an impulse move to the upside by the Designated Market Maker to stave off any selling.
I also see a mini inverted head and shoulders pattern in the chart. The price action also penetrated the 10 and 20 day moving averages. Nevertheless I expect Terex Corp to retest the $16.50 level before advancing to $20.00. I still will exit at$18.43 unless I see something very compelling which keeps my interest high. I will be watching for another trade. If this plays out as expected it will be a 12% return in hopefully short order.
On the Basis of the foregoing these are my views and observations:
I recommend establishing a long position in Terex Corp. Open your position with only 1/4 of whatever capital you intend to commit to Terex Corp at $16.42. Purchase the remaining 3/4 of the position at $15.11 and stop out at $14.49. Do not post your stop out. I have said it before but it is so important that at the risk of being redundant I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again. In addition, when a stop out is triggered it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? I would be looking to exit the trade at an upside price target of $18.43. Do not allow this position to exceed 5% of your overall portfolio.
There is always the possibility that the trade may not work out.
There Is Never A Sure Thing (particularly on a short)
Investors must realize and recognize that there is never a sure thing. Sometimes events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.
In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.
Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. SUN TZU -Art of War "Use an attack to exploit a victory, never use an attack to rescue a defeat."
If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to .003 of the overall portfolio (theoretically valued at $1,000,000).
And finally, never be a brave and brainless investor because a fool and his money are soon parted.
A portfolio of $1,000,000 should position size in the following manner.
This is a trade, not an investment. Be ever vigilant.
That's it for now…. Have a nice day.