On Tuesday, March 19, 2013, Goldman Sachs (NYSE:GS) came out and lowered their price target on Cliffs Natural Resources Inc. (NYSE:CLF) from 24 down to 20. The stock has recently been obliterated. After such a hard selloff, I find it curious that GS would further downgrade Cliffs Natural Resources Inc even further? Like lemmings, traders and investors followed the advice and immediately sold. The ending trading volume for Tuesday was over double normal or average trading volume for the stock. Before the advice, the stock had managed to go sideways and hold support for a couple days and maybe have a temporary bottom. That all changed with the public announcement. The stock that was trying to establish a base immediately broke to new 52 week lows. The very day the downgrade was made public, the low of the day was 20.06, so the target was nearly met immediately. Well, after the one day selloff, CLF is again trying to bottom. It may very well be that the GS reiteration of their sell rating and reduction in their price target will mark the low in this stock. Since I like to buy low and sell high, I am now very bullish on CLF and feel all the bad news has been priced in for now.
I am quite surprised that traders who weathered so much pain already would finally sell in such a deep hole just because GS reduced their target on the stock. Since the target was virtually met, I would hope that some of them bought back in near the lows. I will not join the lemmings and sell out at the bottom. I like to fade downgrades when they are made so late in the game. I am also suspicious of receiving "free advice" from Goldman Sachs or any other large brokerage firm. Because traders act on upgrades and downgrades the brokerage calls usually become self-fulfilling prophecies......for at least one day. However, they often turn out to not be the best advice following the announcement day when the announcement merely reinforces the trend in the stock prior to the call, and the move is very mature. When GS made this last call I used it to scoop up shares at rock bottom prices. I will sell out when this stock corrects back to resistance and GS comes out with a buy recommendation. I have found it pays to think for myself. When a brokerage firm appears to just be piling on when they make a bearish call, I am ready to let the stock break down through support and run out all of the stops, and then buy and play for the recovery. The short interest in CLF is surely quite extreme and at some point those shorts will have to cover. In early December 2012 CLF bottomed at 27.90 and then rallied $12+ on a short covering rally to 40.19. From the $20 area or lower, I expect CLF to rally $12 again to as high as $32, in the very near future.
Disclosure: I am long CLF.