5 Metal and Mining Stocks for Short Term Consideration

Perhaps it’s time to put on the contrarian hat and revisit metals and mining stocks. Aside from the macro tide that could be turning against the sector in the long-run, the near term is looking more and more like a blow-off top could be underway. The group has had the wind at its back with a declining dollar and surging demand in emerging markets, but with a coordinated defense from further declines in the Dollar underway by the Treasury and Fed, that tailwind has been neutralized.

Furthermore, record breaking prices after a parabolic run in these stocks since the start of 2008 is leading to what PhD-laden economists like to call “demand destruction”. Although that term is more applicable to oil, there are similarities in metals attributable to substitution. Stock prices have gotten way out in front of earnings growth for now, and although setting up short trades would be counter to the primary long-term uptrends, in the near term stock has been liquidated by institutional holders that won’t return to the bid for some time. As the June 30 mutual fund redemption deadline approaches, these are the stocks the funds will tend to be unloading in preparation to meet redemptions. Remember, June 30 is the first available redemption following the blood bath in March.

So here are a few names to consider for potential short positions. I would probably build the position slowly by cherry picking into intraday rallies while keeping a position stop above a new all-time high. US Steel (X) is up 75% since the start of ’08 and the move has been a straight line spike. I wouldn’t short Steel but keep an eye on it as a sector proxy.

• Mechel (MTL) has multiple bearish diverging indicators and strength was aggressively sold into on Tuesday, June 03.
• Nucor (NUE) around $75 is failing at new highs but prices are also at the upper boundary of a long-term uptrend. I could see a drop to $60 and still have the uptrend intact while a drop to $68 is highly likely.
• Carpenter Tech (CRS) has bucked the uptrend all year and now with the sector turning over, the sell-off in Carpenter is accelerating. Sell into any rallies but watch the 200w-EMA at $48.
• Great Northern (GNI) has been under distribution all year as I imagine all the large mutual funds have been selling the stock in waves.  I see GNI testing $90 from current levels around $118.
• The uptrend in Steel Dynamics (STLD) looks poised for a sharp correction below $30 but the fundamentals remain strong for this producer so I wouldn’t look out farther than a few months on this.

Comments

[papita:]

can anyone comment on the downgrade by jp morgan this morning on allegheny tech? was this due to yesterday's conference? all comments welcome. thank you.

2008 Jun 05 09:04 AM

[crimfunk:]

Good sign for NUE and watching CRS for the bottom reversal

06/05 09:00 *DJ Nucor Increases Guidance For Its 2Q Earnings


*DJ Nucor Corp Sees 2Q EPS $1,75-EPS $1.80 >NUE




06/05 09:01 *DJ Nucor Corp Had Expected 2Q EPS $1.55-$1.60

2008 Jun 05 09:48 AM

[secmaven:]

MTL and NUE are off to the races this morning leading the market charge upward. It is tough to bet against the momentum darlings of the day.

For some reason, short advice is usually more wrong than long recos. Look at the BOBE short plug of June 3 and the historic rise in the price of that turkey on June 4.

We know the bear raiders on WS are the big money makers for their employers. Why can't the public seem to participate is this gravy?

2008 Jun 05 12:07 PM

[sunrises:]

Steel is actually a global need. Perhaps, one considers metals as a "story" yet it's a perennial requirement for many industrial sectors.

Steel & Metals remains a reliable steady train in many many companies.

Pullbacks are a nice entry point.

2008 Jun 13 01:21 AM

[beautyseer:]

Dump NUE on June 30? Hmmm. That costs 52 cents a share to the dumper, since the board of directors of Nucor Corporation (NYSE: NUE) declared the regular quarterly cash dividend of thirty-two cents ($0.32) per share on Nucor's common stock. AND a supplemental dividend of twenty cents ($0.20) per share, for a total dividend of fifty-two cents ($0.52) per share. This cash dividend is payable on August 11, 2008 to stockholders of record on June 30, and is Nucor's one-hundred forty-first consecutive quarterly cash dividend.

2008 Jun 17 04:22 PM

[Investment ...:]

This was a VERY prescient call to short these stocks. The returns have been mind boggling. Cheers to anyone that faded the mania in metals early in the summer.

2008 Oct 19 04:34 PM

[Investment ...:]

"Cost 50 cents"? Did you skip basic match or something?

2008 Oct 19 04:34 PM