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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Cliffs Natural Resources (CLF) Gets Boost From China Data: Continue To Buy Dips 3 comments
    Aug 9, 2013 12:54 PM | about stocks: CLF

    (click to enlarge)

    My last article on CLF you can find here. We were in the $19 price level when that article came out and I was saying to buy. Today we hit a high of $23.48. In my last article I explained how I was holding on to some shares that I purchased above $20 (with some shares as high priced as $23). Today I was able to sell all those old shares at a nice profit. I also sold out of the shares I bought yesterday based on the fact that we closed above $22, and I was pretty sure we would retest the $23.75 resistance level today or Monday (it happened today). Looking at the chart above, I am now formulating my next move. Here is what I will be doing.

    CLF Is A Trading Stock Only

    The mistake I made in May, was trusting this stock and believing that I could accumulate a core position. That was pure fallacy. Even though I was correct about the fundamental picture; the pause in Chinese purchases of iron ore was only temporary. When the price fell low enough, they began to aggressively rebuild their stockpiles. It took until this week for the street to realize they were wrong about their negative view on iron ore prices. They were too pessimistic about current and future iron ore prices. They probably still are. The news out of China yesterday could be a game changer and CLF could be trading at $50 by Christmas. Or maybe not. In any case, I will play it very close to the vest and will not be holding a core position. I will trade from the long side, scalping a few points at a time, all the time averaging down very carefully, and occasionally holding overnight. But I am done trying to hold onto any core position on this "skanky" stock. I made up the word "skanky" to describe a stock that is so volatile, you cannot hold it long-term due to wild retracement swings lower that are not justified on fundamental grounds, but happen due to technical noise. CLF has a very large short interest that does lend itself to short covering rallies, but also it tends to fall quick and hard when shorts reposition themselves. Therefore, I will buy lightly and will never be fully invested, so I will not get caught again in a long term trade that ties up trading capital for 3 months or more. The next time I realize I made an error, I will immediately cut my position in half, to free up capital to add on further weakness.

    I Will Be Buying All Dips For The Next Couple Days

    Since CLF is a skanky stock, it runs on momentum and pure adrenaline. If it is not making progress to the upside, it will start falling. It will either go up or down, but never sideways for long. If you look at the chart above, you will notice that the week of May 6, 2013, the daily tops in CLF were 23.06, 23.34, 23.42 and finally 23.59 and then the stock rolled over and made a new multi year low at 15.41. The bulls should again get a warning to exit during the current rally just as they did in May. If the high of the day is marginally higher, or 2-3 days go by without making a new high, and a retest of the recent high fails to make a new high or is very marginal, then one must exit all long positions. The moment this stock quits making new highs, it will begin making new lows.

    Since we are just 2 years removed from a price of $95 in CLF, it is not hard to imagine this stock trading at $40, $50, $60 or higher, if the fundamental picture continues to improve. In any case, it is highly likely that the low of $15.41 will not be tested any time soon, and any dip under $20 should be bought aggressively. For now, we will watch to see if we can get through resistance at $23.75 and $25 or not. If $25 is taken out, then $30 to $35 is the next target. If $25 holds the stock back for awhile, then expect a dip back to $20 to $22 possibly, but probably nothing lower than that. The good news for this stock has just begun.

    Disclosure: I am long CLF.

    Stocks: CLF
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Comments (3)
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  • Robert Edwards
    , contributor
    Comments (578) | Send Message
    Author’s reply » We just broke above $24 to a high of $24.15, so the next resistance level is $25. The great momentum I am seeing currently would suggest $25 probably won't hold this stock back. $30 is looking very much as our next target.
    9 Aug 2013, 01:14 PM Reply Like
  • JohnnyM
    , contributor
    Comments (254) | Send Message
    It is amazing how much misinformation was out there regarding coal demand and consumption in China in the last two weeks. WSJ, Barron's, all have views and commentary that deeply affect the price of these stocks who have been beaten to death. These views and price movements can hurt deeply or make small fortunes within days.$15 $CLF was insane along with $WLT under $10.
    Those who watched the decline must have thought China would remain in supposed doldrums for months to come. Now as we get a better view of their call for iron ore and a bumped $130/ tn price from sub $100, all seems rather bullish. Demand had been incrasing steadily. I agree, it is bullish. Crazy bullish. The math does not lie, Both cos will pop hard.
    Not only are both stocks cheap, they are very cheap for the LT investor considering the catalysts that are unique to these two.
    Low float, high short position which may be the largest catalyst to propel both into doubles from here within weeks.
    Your $30+ is a given on CLF. I see $40+, not because of greed but due to obvious value, slow perception shift, high demand for stock and a few shorts that begin to realize that losing their profits is a one way ride to the dungeon.
    Some are predicting one of the most powerful short squeezes in recent history. I guess I could adopt that view. What choice do we have? Do we not recognize the perfect storm scenario is staring at us today?
    Fortunes will be made here. I will watch this show slowly unfold as the larger players take their counterparts where they do not want to go. I like your artilce. jm
    12 Aug 2013, 03:27 AM Reply Like
  • Robert Edwards
    , contributor
    Comments (578) | Send Message
    Author’s reply » Thanks for your comments. I am a contrarian who loves to pick up bargains, and CLF is a real bargain under $20. I am now trying to calculate if $20 will be seen again and now it is looking more like $22 might hold as a low on a selloff. When we traded above $25 today I lightened up, but added near the close again on the lows of the day, under $24.50. This short-term bull move will end when we either make marginal new highs for 3-4 days, or trade sideways for 2-3 days and then fail to take out the most recent high on a rally attempt. I will be watching closely for exit signs. We have moved so much so fast, above $25, I am only playing 1/2 of a position during the day and 1/3 position over night as I do not want to get caught long if we dip. This way I will celebrate a small correction as I get to buy back cheaper and average down as this stock is and will remain a skanky stock.
    12 Aug 2013, 09:44 PM Reply Like
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