They have been killing the miners. Raymond James came out Friday, 6/7/13 and slammed coal stocks. Walter Energy (WLT) made new 52 week lows and fell further this week. However, Cliffs Natural Resources (CLF), which has sizeable coal mines in addition to iron ore, did not make a new 52 week low either last Friday or with lower prices this week. On Wednesday's close, 6/12/13, we bounced off 17.20 to close 17.37, down 13 cents. A new 52 week low was missed by just 58 cents. On Wednesday it formed what I call a flagpole (a name I came up with myself). The last time we did a similar flagpole formation (May 24th) I wrote an article explaining the formation. But it failed to rally the next day as expected and support at $20 was broken to the downside. I decided this time to make sure we went up, and then write the instablog. Today, CLF not only rallied, after stopping at 18.49 and falling back to 17.90, it actually made a new high of 18.79 and closed 18.70, above the critical 18.50 resistance level. I am now calling for a bottom in CLF and looking for a rally above $20 and into initial resistance at $21 to $22. The stock was helped by positive broker comments stating that the worry over soft iron ore prices was overdone! Duh! About time, already!

Maybe Cliffs Natural Resources (CLF) is part of a bigger story. The Brazil ETF (EWZ) was at a 4 year low and may have also put in a meaningful low today. Walter Energy (WLT) fell from 100 down to 11 during the great recession of 2008. WLT rallied all the way back up to 140 in January 2011 and stayed up there till May 2011. Now the stock has fallen to just under 14, not that far from the 11 price low of 2008. Things will improve for WLT and CLF in the future, and don't be surprised to see WLT at 80 to 100 again, if not 140, and don't be surprised to see CLF at 60 to 80, if not 100. But for now, these stocks are hated. No one wants to go out on a limb and say anything good about material and mining companies. These stocks have been beaten down to ridiculous levels. But I believe all the bad news has been already factored in when it comes to the hated coal, iron ore, copper, and gold stocks. During the second half of 2013 and all of 2014, these hated stocks should become wall street darlings as they should show some of the largest gains.

Disclosure: I am long [[CLF]].

The main takeaway is that we broke down through the 2012 low, but when we traded at 93.21 on Tuesday, we came very close to the 2011 low of 93.01 and have started a nice bounce. Starting tonight, I have moved from trading the June contract, to the September contract, which trades about 62 pips lower. Support that should hold now in June at 94.00 means we should hold support in the Sept. contract at 93.38. Sentiment is now at extremes. Large speculators are now the most short they have been, in recorded history. I knew it was just a matter of time before we began bottoming, so I started buying all new lows in the Aussie. Now, instead of buying just new lows, we should be able to begin buying all dips in the Aussie.

Buying all new lows in the Australian Dollar is the best commodity trading idea I have right now. When the June Australian Dollar contract dipped to the recent 95.15 low, I had said to buy 95.50. You could have banked a pop to 97.82 within a couple days. My next buy zone was 94.30 which barely caught the bottom Wednesday night, June 5, 2013, when we dipped to a new low of 94.29 and then reversed to hit 96.69 Thursday morning. I sold out completely at 96.15. However, I am now buying again last night and this morning as we dipped again to a low of 94.60. I like trading two accounts. I bought a contract in one account at 95.33 and a contract in the second account at 94.83. If we should drop to 94.33 when I would buy another contract in the first account again, a dollar lower than the first one. If we should drop to 93.83 then I would buy again in the second account. This way I am buying every 50 cents we drop, but by alternating the accounts, I am spacing the purchases a dollar apart. When I bought at 94.83 then I day traded that contract several times as we traded back and forth from the 94.80 area to 95.20. I remain extremely bullish due to the extremely high short interest level and oversold condition of this market. I am very bullish buying 94.50 to 95.00 for the next couple days and selling out 96.00 to 96.50. When we pop a couple dollars, it is time to get out and get ready to buy again on the next dip.

Gold, GLD, GDX, DUST, etc.

Like the Australian Dollar, gold has a very high short interest, which is keeping it from going down right now. I foresee the tight trading range continuing for awhile longer. For gold to fall from here, it must first rally a bit to force the shorts out, and get some bulls to buy so they can be whacked on the next upcoming dip. Right now, I like buying August Gold futures 1385 to 1410 and selling 1425 to 1450. I am not bullish the gold miners when GDX trades above 30, and feel 31.00 is formidable resistance. I feel one can go short the gold miners as well by buying the triple ETF DUST on all dips. When DUST fell to 75 recently, it was able to pop to 81.64 the following day. The next trading day DUST hit a low of 70.41, followed by a high of 78.86 the following day. Yesterday we hit a low of 71.00 I believe DUST is a buy on every $5 selloff, so if you buy 70 to 71, you can buy again 65 to 66, and again at 60 to 61 and so on.

CLF

This stock is basing at $18 and is due for a $3 rally to begin at any time, to $21. After we consolidate for a few days and fall back to maybe $19.50, I would then anticipate a move to $24 to $25, taking out the recent high of $23.75. As traders are starting to see iron ore prices base in the $100 to $110 area, CLF should likewise base in here and prepare again for a move higher out of extremely oversold lows. Slowly all the steel slowdown bad news is getting priced in and then some. I feel anything under $18.50 is a fabulous buy in CLF.

Naked Lean Hog Call Writing

Lean Hogs have rallied $5 to $6 in the past 3 weeks, aided by the news that China is buying Smithfield Foods. I live just a few miles away from the Smithfield, VA headquarters of the company. I enjoy eating ham and I love selling out of the money calls and puts in Lean Hogs, that are set to expire in the next 2 to 6 months. I am now watching for a spot to sell some out of the money August, October and December Lean Hog Calls trading at least $5 out of the money. I want to fade the current rally as I feel it is not sustainable due to the large pork supplies, presently trying to compete with ample poultry supplies.

Other Markets

I presently do not like the action in the stock market as I feel it is too treacherous trying to play either the long or short side right now. I presently have no conviction regarding market direction, and feel it is prudent to stay away. I can't remember a time when I was so repulsed by the high valuations of the momentum crowd darlings. Likewise, I am appalled by the absurdly low valuations of the hated stocks that just can't catch a bid. Very, very slowly the hot money should soon start to return to the hated, beaten down stocks so that the recent rally can be broadened out. If the laggards never get bought and catch up a little, don't be surprised to see the momentum darlings come crashing down this fall.

Disclosure: I am long [[CLF]].

I have now turned bullish again on this stock!

This stock has faced relentless selling. The short interest is through the roof. In the midst of such bearishness, how can I be bullish you ask. Well, you see, I am a contrarian. Also, I don't look at the present, I look into the future. I ask myself if this current bearishness will change. What catalyst will bring about that change. I think I have located the catalyst that will prove all these prognosticators calling for lower prices for iron ore in 2014, all wrong.

More Of The Same From Bearish Analysts Piling On!

I didn't feel so bad about the big bad selloff down to $18.04 in CLF on Friday, once I read how all the iron ore producers were hit hard this week. And why did they fall again on Friday? Well, if you are at seeking alpha, punch in CLF and then select "Market Currents" and you will read this. Iron ore prices suffered their worst week in a year, and Barclays believes the drop likely will continue as significant new capacity enters the market between now and 2014. But wait a second. This is not new news at all. This so called "news" about 2014 bringing lower prices has been broadcast by one analyst after another for several months and each time a different analyst speaks, the price of the stock falls like it was new news, catching everyone off guard. This news has already been factored into the stock dozens of times. At some point the stock price fully reflects all the bearishness. I believe CLF fully reflected all current and future bad news when it fell to the price of $20 and no trading under the price of $20 is justified. So the next time another analyst comes out and tells you iron ore prices will be lower in 2014, instead of selling like the lemmings, you might want to use it as a reason to buy!

Iron Ore Inventories Are At Extreme Lows

Here is an article you can click on that will explain how in February of this year the price of iron ore was at extreme lows, while inventories were at extreme lows. Now, wait a second. This is not right. Usually prices are at lows when inventories are high. So how can this be? Well, you must not know about the Chinese. They are masters at controlling supply and demand of anything they purchase to get the price down occasionally in order to restock at the lowest possible prices. What they do is, they hold off buying something they want like pork lets say. With them out of the market, the price of pork drifts lower as China is now the major buyer of pork in the world, and their buying is the major driver of price. So, the mere fact that China waits a little longer than usual to buy, starts to worry the pork producers and processors and they accept lower and lower prices while waiting for China to come back in and buy. How can China hold out their purchases to get the price to fall? Well, they stockpile pork when the prices are low. Then when the prices rise to a point they find them not so attractive, they draw down their inventories as they back away from the market. Not surprisingly, analysts all rush in and tell everyone how Chinese demand has decreased and as the price of pork falls, the analysts predict a more dire future and tell producers they better sell now because prices will go nowhere but lower in the future. The media is a propaganda tool to get prices lower and lower, which hurts the U.S. producers and processors but helps the Chinese. The media is a great tool of price destruction that helps make lower and lower prices a self-fulfilling prophecy. With demand from China actually steady and no change, because Chinese knows how to stockpile in approved warehouses (where everyone knows how much they might have) and unapproved warehouses (no one has a clue how much they have), then they can get the price to fluctuate both up and down. It is during the time prices are low that they do a majority of their purchases and lock in the low prices as far into the future as they can. The Chinese also usually refuse to sign long-term contracts as they want to be able to buy at the "spot" price. The spot price is preferred because the Chinese know how to get the spot prices back down after prices rise.

When Stockpiles Are Used Up, Iron Ore Prices Will Bottom

Now, how does this relate to iron ore? Well, the Chinese bought extra iron ore and stockpiled it. They have backed away from the high prices hit in 2012 and are now relying heavily on their stockpiles. They continue to draw down those stockpiles. Backing away from making purchases has dropped the cash prices for iron ore 10% just this week. The plan is working. I read somewhere that this could change in 90 days though when the Chinese will have used up their stockpiles and they will have to return to the market for more iron ore. If that is true, the price will bottom shortly and then start going up a bit to allow the Chinese to not only meet their current needs but allow them to stockpile again at rock bottom prices. I believe that replenishing stockpiles is the catalyst to a bottom in iron ore prices and the bottom in the price of CLF.

Prices in 2014 Will Be Higher, Not Lower As Predicted

They say the cure for high prices is higher prices. When there is a shortage of something and demand pushes prices higher and higher eventually the price hits a level where marginal buyers refuse to buy any more. Supply and demand returns to a balance and the free market naturally rations out supply to those who really need the product. Well, the cure for low prices is lower prices. As demand drops, marginal producers will stop producing which eliminates the excess supply and prices stabilize. Also, large producers aren't stupid either. They stockpile what they can as they don't want to sell their product at a price below what it takes to produce. No one is benefited from selling at a loss.

You see this occur in all kinds of markets. Natural gas prices plummeted in 2012 with a glut of new supply thanks to fracking. Predictions abounded how they would run out of storage space during the fall "shoulder season" and the prices went below $2 MMBtu. Prices were supposed to be even lower in 2013 than in 2012. Analysts only reflect the present that they extrapolate indefinitely into the future. But a funny thing happened. The supply glut never quite materialized as the supply slowed down while the demand picked up to take advantage of all that cheap natural gas. In 2013, prices are now above $4 MMBtu where they started.

Either the Stock Market Crashes Or Iron Ore Prices Rebound in 2014

I naively believe that low iron ore prices of 2013 will cause supply to decrease and the low prices will increase demand so that in 2014, iron ore prices are higher and not lower as all the doomsday prognosticators insist will occur. Either the stock market will crash or iron ore prices are going to rise. There is a major disconnect here that must be resolved. The stock market is telling us happy times are here, and we are in a period of prosperity, but iron ore prices and bearish sentiment says we are in the midst of a deep recession or depression. One of these is wrong. Copper prices remain relatively high, which tells me the economy is not heading for disaster.

Remember 2008 when auto sales were dropping causing the need for "cash for clunkers". Today auto sales are stronger than ever. Another example is housing. Since the housing market collapse, the number of houses on the market are slowly decreasing as we are not building enough new houses to replace those being destroyed. Eventually even the housing market will turn around as a result and at some point the price of housing will hit a new all time high, due to inflation. China has a real estate and housing bubble developing with a lot of houses and buildings sitting empty. The lull in building will eventually cause pent-up demand that will cause a big surge in building again and steel prices will shoot through the roof. I believe 2013 is the low in steel prices, 2014 prices climb to 2012 highs and 2015 we move to all time high steel prices as Europe starts working out of recession.

In 2008, Freeport McMoran Copper & Gold (FCX) traded down to $15.75 which translates to a split adjusted price of $7.87, compared to today's price range of $30 to $33. FCX came roaring back and I am convinced that even if CLF trades down to $12, $10, or even $6, the lower it goes the bigger the rebound. If we hold support around $17, then I believe we rally to at least $38 in the next 12 months, more than a double. If we fall to $12, then I see $48 to $60 in our future. If we fall below $10, then I see CLF going to $90 or higher. Think of it as a coiled spring. The more the spring is compressed, the greater the rebound when the pressure is relieved. I don't know where the bottom is. I just know that the lower it goes now, the higher it goes later. They are treating CLF as if we are in the midst of the great recession of 2008, which we are not. Any small bit of positive news or just less negative news and this stock could shoot up like a rocket, thanks to all the short interest.

Recently gold mining stocks were extremely depressed to 2008 prices while the gold metal remains much higher than 2008 prices. The last few days, almost overnight, the sentiment has improved and now everyone is starting to jump on board the GDX train and turning much more constructive. The same will occur with the iron ore and coal stocks as sentiment extremes cannot last forever and we have passed the point of ridiculous.

Coal Prices Will Rebound As Well

I need to add a quick comment on coal prices. With the rebound in natural gas prices, one would expect some switching by utilities back to coal, but so far coal shipments remain depressed. This lag has also depressed the price of CLF because the company has metallurgical coal in addition to the iron ore mines. When liquefied natural gas (LNG) starts shipping out of this country in 2015, natural gas prices will get a big lift, which will cause coal prices to rise substantially. If coal prices rebound a bit, this stock will trade at $30 just based on the coal operations. Add if it trades another $30 dollars based on the iron ore operations, it is not hard to see a stock price of $60 by 2015, it not sooner.

Conclusion

It is no time to panic. We are surely very close to a bottom, as the bearish sentiment is so thick, you can cut it with a knife. Markets top when they run out of buyers. When every who wanted to buy has done so, prices plummet. Prices bottom when we run out of sellers. With the recent price action, the bottom can't be far off. There is something that I call the "puke factor" or "pf". It is very high right now. It is that feeling you get in the pit of your stomach when you are long and wrong. You are ready to puke and get out of the stock at any price. Right now the urge for diehard bulls to regurgitate their stocks is extremely strong. So, as I enjoy my weekend, I will take solace in the fact that the upward price movement potential far exceeds the downward movement potential. CLF will not go to zero and no one is predicting a move as low as even $6 under any scenario, since book value is $32.49 per share. But if it could drop to $6 that is a $12 drop from the current $18 price. A move to $60 is a $42 increase from $18 so there is 3 1/2 times more upward potential vs. downward potential. Personally I will be shocked if we ever trade as low as $12 with $15 the most likely worst case price scenario. If $15 is the bottom, that is $42 of gain vs. a $3 risk to the downside. I will take those odds any day!

Disclosure: I am long [[CLF]].

Going long the June Australian dollar is my best trading idea right now. After bottoming at long-term support at 95.15 on Wednesday, Thursday had some fabulously wild swings. You could buy first when it dropped back to 95.65 (just 50 pips from the bottom), then catch a night rally to 96.87, get short and ride down to the morning low of 95.72 where I was buying, and riding up to 9681, only to move sideways back and forth from 9641 to 9675 all afternoon. I did a lot of scalping late. I look for the bottom at 95.15 to hold for several days while a seasonal low occurs so all dips can be bought. In fact, if Friday we sell off, we should make all the move right back up on Monday, and go on higher approaching 97 and eventually 98. Since 98.50 on the down move, all 50 cent dips to new lows have been buys. My recommendation to get long at 95.50 was an excellent call and I am staying long and scalping for the immediate future. Last year's low of the year of 95.65 was made in late May. Personally I feel that the Aussie will not trade in 2013 below 94, but if it does you can know that I plan to buy all dips until the currency returns to a premium over par. The oversold condition and bearish sentiment is extreme, paving the way for an eventual short-covering rally which could travel much further than anyone might imagine possible. Even with a recent rate cut, at 2 1/2% this currency carries a nice premium yield over other currencies and Aussie should rally with gold as gold also corrects from the April selloff.

Gold Movement Forecast

I am looking for August gold to find minor resistance at 1425 and especially 1435 to 1450, where it should top out and then return to the 1405 area where it should get support for a retest of 1450. If 1450 can be taken out then expect a retest of 1485, but if it cannot take out 1450 then look for a retest of 1372 and eventually 1300 and lower. Until gold trades above 1500 I remain bearish above 1450 and will look to fade the current rally into resistance at 1450. I still believe there is at least a 50% chance that gold trades down to 1225 in the next 12 months. I am extremely bullish under 1300 and will be buying all dips under 1300. By the same token I will be selling all rallies above 1450 until I see two closes above 1500.

Gold vs. Platinum

My favored trades right now in the metals is to buy gold on dips and sell platinum on rallies. Platinum is "skankier" than gold, which means it will sell off hard for no reason. When this occurs, one can take profits on the short platinum side of the spread trade. I like being long a full 100 oz. August gold contract and selling two July Platinum contracts against it, especially when the premium of platinum over gold expands, playing for a contraction. One can also play long 3 to 5 Micro Gold (10 oz) contracts against one Platinum. As an industrial metal, on weak stock market days, platinum should underperform gold. As we get into the summer the stock market should start experiencing more down days unless you believe the DOW is the reincarnation of the Jack and the beanstalk story, and it can grow to the sky without any meaningful correction.

GDX vs. DUST

Today when the gold miner ETF GDX hit 30, then the triple short ETF of DUST fell to support at 75 and I bought DUST at 75.01. After rallying to 78.78, DUST came back to 75 again. I did not buy it late in the day because I was afraid gold could pop overnight and DUST might open at 70 or lower Friday morning. I like buying DUST at 75, 70, etc. in 5 dollar increments down to 60 possibly. But I like pairing the trade of 100 shares of DUST with being long 600 shares of GDX. If one is only trading 300 shares of GDX long, then one would only buy 50 shares of DUST. This way one can spread off overnight and not get caught in a big morning move against your position. I feel it is ok to scalp a few dollar in DUST when GDX hits resistance. But if one is holding overnight, I suggest pairing it up with GDX shares. DUST fell from 105 to 75 in a couple days.....what a mover! The easy money in GDX has been made for now and DUST will start getting some footing as it trades down to the 60 area. I do not see it falling below 60 at this time.

CLF

I underestimated how low this stock could trade down to after hitting a high of 23.75. I felt 21 should hold and then really believed 20 was going to hold. To be trading down to 18.50 is a major disappointment. There is still a post earnings gap from 18.10 to 18.50 that is not filled. I have a small core position in this stock priced at 23, and lots of shares priced in the low 20s and low 19s. I fortunately sold out my shares purchased at 21 when we rallied to 21.80 recently. The average price for the low shares is 19.60 and when we trade back towards 20, I will be lightening up for sure. I am not convinced this stock is ripe yet and has matured enough for a sustained rally. In the meantime then I will continue to dump a few shares on rallies and then buy them back on weakness to lower my average price. I do not plan on selling out at a loss. CLF should stay above 18 or at least 17.50 and at some point get an upgrade based on valuation and we get a pop towards 20 where I can lighten up.

Disclosure: I am long [[CLF]].

Sold out in premarket the shares bought near close and aftermarket on Friday. Got 40 cent profit. Iron ore prices fell 2% in China on Monday so CLF struggles in here, but again, all dips are buys in my opinion. Not happy with the struggle CLF is having so far today but 20 remains solid support.

GDX And The Metals

I am bullish gold metal in here so I like buying GDX on dips. Commercials are heavily long while hedge funds are at record short interest levels. This should get resolved by rallying to 1450 or higher in gold futures which should force some short covering. I believe August gold closes above 1450 before it closes below 1350. I would not suggest anyone play the triple ETFs of NUGT or DUST right now as we are in a consolidation phase right now and it is too dangerous to play these until we develop a trend again.

I have been buying micro gold contracts on dips, along with buying July platinum 1450 and below for nice scalp trade profits. Platinum is very bouncy in here and doing great.

Currencies

On all new lows in June Australian Dollar I believe one can buy. I have buy orders sitting at 9550, 9500, etc., buying every 50 cents lower with intentions to sell out on 100 to 150 point rallies. This strategy has worked well since June Australian dollar fell to 9850 and buying on dips should work even better the lower we fall. I am also scalping from the long side in the Australian.

Other Commodities

I believe crude oil is a buy on dips and it should rally a bit in the next couple days. I would switch to the short side once July Crude Oil approaches 97 to 98. I am cautiously bullish live cattle in here but bearish on lean hogs. I am looking to sell out of the money lean hog puts on strength, in the August and October option months.

Disclosure: I am long [[CLF]].