Robert Edwards'  Instablog

Following a much better than expected earnings report on 4/24/13, CLF rallied big the next day and left a gap between 18.22 and 19.52 on its way to 22. After falling back to 19.77, CLF rebounded to 21.98 and looked like it was going to bust through the 22 area resistance. Well, with all the short interest in this stock, it was important for the bears that the stock was attacked with a downgrade to keep this stock from making a bullish run towards 30. The bears got their wish on Thursday 5/2/13 when the coal sector was downgraded along with news that WLT may have to issue more stock to cover their current debt obligations. An analyst predicted 6% lower coal prices in 2013 and 14% lower prices in 2014. Like anyone can really make a prediction about 2014 prices in coal. Also CLF sells metallurgical coking coal, a niche market that is tied somewhat to the price of iron ore and steel, and not directly tied to the broadly available bituminous coal used in heating and power plants. CLF was pulled down with the coal sector stocks and hit a low of 19.02, partially filling the post earnings gap. I bought into that Thursday 5/02/03 dip caused by the downgrade. Anyone who sold into the lows was wrong to do so.

Now it is Monday, 5/06/13 and FBR upgrades CLF and we get a pop to 21.14 which allows me to sell above 21, the shares I bought under 20 last Thursday. Upgrades and downgrades do have a one day impact. If a downgrade occurs, then sell out early in the day and buy your position back near the lows of the day, usually near the close. And likewise, on upgrade days, use strength to sell out the shares you bought on the downgrade days. Smart money makes money by doing the opposite of upgrades and downgrades, by fading the advice. Thus, what good is the advice then for the average retail trader?

Upgrades also tend to increase near highs in a stock and downgrades near the lows. It happens in commodities as well as stocks. When crude oil was in the $127 to $130 area they began predicting a move to $200 or higher. Just above $140 crude topped out and fell into the mid $30s. In stocks I like to buy the close of a downgrade day. In commodities I like to fade a bearish report, especially if it is a real shock to the market. However, related to commodities, one usually has to wait till the 3rd day to buy. As long as traders act like lemmings and dump out of their positions when analysts tell them to do so, the analyst downgrade will always be a self-fulfilling prophecy for at least one day. And if you like the stock, you know when to buy, the close of the downgrade day.

Disclosure: I am long CLF.

On 4/17/13 I wrote an article explaining how Freeport-McMoran Copper & Gold Inc. (FCX) was trading at long-term support. Check out the article here seekingalpha.com/instablog/6143431-robert-edwards/1767981-freeport-mcmoran-copper-gold-inc-fcx-is-trading-at-long-term-support That article was written just prior to earnings and sure enough, FCX bottomed just below 28 and is now trading solidly above 30. I have since sold out of the shares that I bought prior to earnings since copper has not bounced as well as the stock has. It is still quite possible that copper breaks down below major support at $3 and trades down to $2.75. However, with the strength seen in FCX recently, it would appear that FCX will likely hold at the recent low of 27.50 to 28, even if the metal trades lower in the near future.

Therefore I see an opportunity to do some naked short selling in this stock. I would favor selling 28 and 29 dollar puts for income, and would choose puts that have 1 to 2 weeks of time value, to take advantage of time decay that accelerates into expiration. If FCX would dip to the point the options go off "in-the-money" and I am exercised and own the shares, I will then immediately sell calls with the same 1-2 weeks of time value until the stock rallies enough to call the shares away. I don't see FCX booming anytime soon, nor do I see it selling off much. Thus, it appears to be a good time to consider selling puts for income on this very fine, well managed company. If we slip down a bit and one gets exercised, one might even pick up a dividend payment if the timing is just right.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Although I am not long FCX stock, I am selling puts which is a neutral to bullish strategy.

Cliffs Natural Resources, Inc. (CLF) has bottomed and will soon explode higher towards 30. You might want to read my most recent article published just prior to earnings seekingalpha.com/instablog/6143431-robert-edwards/1783411-cliffs-natural-resources-inc-clf-is-still-bottoming-folks where I was calling for a bottom in this stock as it was happening. I make my calls in real time, getting myself and a few loyal followers in at the beginning of a turn. I am sometimes early in my call, but if you follow my articles you will see that I am rarely wrong. Recently I called the bottom in Lean Hogs and Live Cattle, the bottom in FCX under 30, the bottom in gold stocks, several correct turns in DUST and NUGT, etc.

Get In Now Before The Train Leaves The Station

Cliffs Natural Resources, Inc. (CLF) will not be returning to the lows (think 17) anytime soon, in my opinion, because following a fabulous earnings report, sentiment is improving daily. Traders are rushing in to pick up shares on any dips. After hitting 22 following earnings, the stock corrected a tad under 20, but those lower prices were rejected. We closed back above 20 and yesterday retested the 22 high by hitting 21.98. I expect that we will continue to hold above 20 and will soon overcome resistance at 22 and soon trade towards 25 and then 28 and possibly 30. Earlier I predicted this stock would not trade below 16.65 as it was in freefall, and I was right. The low turned out to be 16.73. Now I am predicting that support holds at 20 and that the 22 high will be taken out in short order. As we retest support at 21 today, it is a wonderful time to get positioned for an explosion higher that should be coming in a few days. If one studies both weekly and daily price charts in CLF over the past several years, one will notice how the stock likes to swing down as if falling off a cliff (pun intended), only to quickly correct back higher $10 to $12. Counting from the recent bottom of 16.73, that means one should expect to see this stock trade in the high 26s to the high 28s. Buying in at the 20 to 21 area, this offers a great profit opportunity to someone willing to stomach some outsized volatility. Notice I did not say risk. I consider this stock very volatile, but I do not consider it to be high risk. The only risk is to the bears who continue to hold their large short position. Panic short-covering buying will provide the catalyst to move this stock higher in the near future.

Disclosure: I am long CLF.