Robert Edwards'  Instablog

If you have been following my DUST Road Map articles (the last posted 4/24/13 and you can find it here seekingalpha.com/instablog/6143431-robert-edwards/1793131-dust-road-map-has-been-golden you would know that I was calling for DUST to stop dropping from the recent high of nearly 120, and looking for a bottom 70 to 80.

Right on schedule DUST stopped going down just under 76, which allowed me to get long and make a nice move to 92. Unfortunately my 95 to 105 target was not reached on the first try. The next rally attempt stopped at 94 and then after playing in the 80s we finally hit the 95 target yesterday. I played the first two pops but did not play the final one as I was getting ready to reverse and go the other way. Instead of buying NUGT, the triple long GDX ETF, and the direct opposite of DUST, I chose to sell 32 strike puts on Newmont Mining (NEM) on Tuesday, 5/07/13 that expire this Friday. I also bought a few shares of NEM. Well, after one strong rally today, 5/08/13, I am now out of NEM and the puts I sold for 31 cents are virtually worthless. I am now calling for NEM to top out between 34 and 35 on Thursday and to then start another down move. If I am right, then DUST should again get some support towards the 75 to 76 area or slightly lower and should be a nice buy. I expect DUST to bottom and then move 20 to 30 dollars off the low over the next couple weeks. I will post updates in the comments section of this article so check back to see what is going on if you like.

Long-term I am very bullish gold stocks and feel they may be the best sector to be involved in during late 2013 and most of 2014. However, I do not feel that gold is through going down and we really need to trade under $1300 for gold to make a meaningful bottom in the $1225 to $1240 area. When the precious metal trades below $1300 is when I will stop playing DUST and will get serious about owning NEM and other gold stocks.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DUST over the next 72 hours.

Today, 5/08/13, Cliffs Natural Resources, Inc. finally blew through stiff resistance at 22 and closed near the day's high at 23.15, up $1.82 for an 8 1/2% gain. Now, where do we go from here. By closely studying the daily and weekly charts on this stock over the past 10 years, I do have some clues as to where we might trade over the next few days.

First of all, we are now up 4 days in a row, and are somewhat extended on a short-term basis. The easy money on this up move has now been made and it is unlikely CLF will rocket straight to the moon. It is curious that in the aftermarket, CLF has been weak the last several days of this rally (bullish sign for this contrarian) and the next day we closed up. Well, finally this evening we closed up 16 cents at 8:00 p.m. compared to the regular market close, something I take as a sign of capitulation by bears and maybe we now do a bit of consolidation. For tomorrow, 5/9/13, I see one of two scenarios:

A) A 50+ point higher opening and the high of the day is in the first ten minutes of trading, with 50 points up and 50 points down being the daily range, and a small down close. Friday would be a down day that brings us down to 21.80 to 22 for a weekly close just above 22, a retest of the breakout area. This is the more bullish of the two scenarios I envision, as after retesting the 22 breakout area, what was resistance becomes support. This consolidation move allows another rally move to begin, with 24, 25 to be the next targets. With a surge we might hit 27 or higher and achieve the $10 move off the bottom that I have been predicting for some time.

B) The more bearish scenario plays out like this: we open near unchanged on Thursday, to only slightly higher, and then trade down near 22, and then spend the rest of the day fighting back to near unchanged, only to close down maybe 15 points lower for the day. Friday would then be a final rally blowoff day and we close the week out hitting 24 or higher and close maybe just under 24. This is the more bearish scenario as the bull move is exhausted with no consolidation and beginning next week we being a choppy move lower down towards 21.50 (50% correction of move from 19 to 24) or 21.00 (62% correction of move from 19.02 to 24).

In either scenario, what one can conclude is that 23.50 to 24 is formidable resistance for now. Also, if you missed the rally the last 4 days, you should have a chance to buy at a price of 22 down to 21 and don't have to chase. I look for support to show up again at 21.80 and 21.00. Post earnings, CLF hit 22 just 8 trading days ago, only to fall back 2.23 the next day (19.77). Two days later we hit 21.98, only to fall two days later to 19.02, a drop of nearly 3 dollars. Thus $2.20 cents to $3 off any high, should be a good place to buy. I will be buying very small on every single dip this stock makes but again, I will be buying in size at 21.80 and again at 21.00 if allowed to do so in the near future. Happy bagholder here signing off for now. Check back and read this article and I will be posting comments to update my latest ideas as the future plays out.

Disclosure: I am long CLF.

Additional disclosure: Although I am flat overnight, by the time you read this, I will already own a few shares.

My last article related to Lean Hogs was written in early April and you can read it here seekingalpha.com/instablog/6143431-robert-edwards/1721801-i-am-long-june-lean-hogs-short-june-lean-hog-calls-for-protection. At that time I was long June Lean Hogs and was selling calls against the position. Then the June Lean Hog contract took out the 92.50 resistance level and hit a high of 92.87. However it fell back under 92 so I liquidated my longs and as the contract sold off, I bought back my calls at a profit.

When hogs bottomed again in mid April, I was bullish and I sold 84 strike July Lean Hog Puts. On strength towards 92 in the July contract, I sold 98 strike July Lean Hog Calls. Both sides remain far out of the money and I have a profit presently on both sides of the short strangle position.

Recently I have been day trading for several days from the long side and sold 96 strike calls to protect my long position if I stayed in overnight. As we recently traded up towards 93 resistance in June Lean Hogs, I took profits on my long positions and on the present minor setback, I have taken profits on all 96 calls.

I am now left with my original strangle position that continues to slowly increase in profit value thanks to time decay in the out of the money options. Right now I am short the 84 July Lean Hog Puts and short the 98 July Lean Hog Calls.

I believe that we are now approaching a time when Lean Hogs may seasonally retrace to lower prices. I am looking for Lean Hogs to top out this week and may do some naked call selling to take advantage of the anticipated dip. I will now move into the August contract to sell calls and am hopeful we might get a bit of strength in the next couple days to sell into. I will be looking at the August 96 and 98 calls to sell short. If and when we sell off and then stabilize, I hope to balance out the position again by selling far out of the money August puts.

I am hopeful that in any case, July Lean Hogs go off the board above 84 and below 98, and both sides of the strangle, the calls and the puts, go off worthless. I hope to also do the same thing with the August contract once that position is established.