Petrobras (PBR) And Cliffs Natural Resources (CLF) Are Trying To Bottom

Feb. 01, 2014 11:27 AM ETPBR, CLF8 Comments
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Contributor Since 2012

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 trading of stocks overnight. I also specialize in weekly stock option premium selling, along with pre-market and post-market psuedo market maker and stealth trading activity, and selling commodity option strangles (selling delta neutral pairs of far out-ot-the-money puts and calls), with the intent to achieve a steady 1% weekly return. After 32 years, well battle tested, very opportunitistic while putting capital preservation as tantamount. Rehabilitation Counselor over 20 years, M.S., M.B.A., now an around-the-clock speculator. Incorporate seasonals, time of day, and other patterns and methods where high probability price movement patterns can be statistically forecast. Know how to safely go long high beta, heavily shorted stocks; know how and when to use extremes in sentiment to take the other side. I like to fade extreme moves as my proprietary methods are based on reversion to the mean theory. Developed my own scale trading and money management techniques. Will change and adapt my trading style based on current market conditions. I hope to start a chatroom devoted to teaching speculators how to see and capture daytrading opportunities. They say that those who can...do, while those who can't....teach. I want to provide teaching from someone who really can do, someone who knows how to make steady returns while experiencing minimal drawdowns. As a mentor, I would love to share my knowledge and support to help small traders. I came from humble beginnings and have never forgotten it. I want to accelerate the learning curve of my chatroom students so they won't have to make all the mistakes that I have over the years. I am excellent at devising and implementing strategies that can quickly turn a losing trade into a net winner.

CLF Is Getting Bouncy

Two weeks ago I wrote an article recommending to start accumulating shares in Cliffs Natural Resources Inc. (CLF), click here. I was definitely too early and should have waited for a buy signal at americanbulls.com before venturing in. Although I scaled into the trade, I planned to have $20 as major support and was hopeful we would stop at $21. So when we kept falling and looked to violate the $20 support level, I liquidated my long position at a loss, in hopes of buying back lower.

Getting out worked well at first since we immediately fell below $20 the next day. But the day after that, we traded slightly under $19 where buying appeared and reversed the stock to close up, at $19.40, creating both a bullish hammer and bullish Harami candlestick pattern. I decided to wait till the next day to see if the bullish signs were confirmed before buying, but the stock gapped up on the basis of a rumor, opening at $21.86, hitting a high of $21.90, and then fading the rest of the day to close slightly under $20. The next morning CLF opened down and I took the stock off my screen, but because it closed up and gave a trading day bullish confirmation, Americanbulls.com went long at $19.69. The stock opened on a high of $20.24 on Thursday but then fell back towards the low $19s. On Friday we opened just below $19 and reversed to close up just 6 cents at $19.32.

It is apparent CLF does not like trading below $19 and is trying to forcefully move out of the bottom. Similar action occurred in the middle of June 2013 at around $17 support. Unfortunately then, the stock could not hold the $17 support and had to spend a couple weeks establishing a bottom in the mid $15s. So now I would say that a major bottom should occur in PBR around this $19 level, but if this support gives away, we might spend a couple weeks bottoming in the $17.50 area. From this low at $19 or $17.50, I would look for a 35 to 50% rally to develop over the next few months.

PBR Should Be Within $1 Of A Major Low

Recently Petrobras broke down to a new 52 week low, breaking major support of $12.03. Petrobras has been in a long-term downtrend and the previous three times support was broken, the stock had to fall 16.5%, 16.5% and 15.5%, before bottoming again. So when $12.03 support was broken, I projected the next major low would occur 15.5% lower, or at $10.17, as described in my article, click here. Petrobras (PBR) fell this week to a low of $11.15, and although I could be buying a whole $1 early, I decided to buy on Friday's close. Here is the chart:

This is a daily chart of PBR, but if I showed you the weekly chart, you would see that we have been in a 10 week death spiral lower which has taken the stock down from just under $18, to just above $11. This stock is extremely oversold, and is actually gaining momentum to the downside. This is what one expects to see at a capitulation low. The stock is now only trading at about half its book value and less than 6 times forward earnings.

When the stock gapped down hard on 12/02/13, it tried to hold at around $14. After a week-and-a-half it fell to the mid $13s where it spent nearly 3 weeks before sliding on down towards the mid $12s, just above the $12.03 support. It was able to stay above $12 for 2 weeks. It has now spent 6 trading days below $12, but only 3 days testing $11.00. I bought just below Friday's close of $11.21, as I feel that PBR should spend at least another week in the $11 range before slipping lower. If we do slip lower, then I will hold onto the shares and add more at the major $10 support area, where I expect a significant low to be made.

PBR Made A Bullish Gravestone Marker (Flagpole) Candle On Friday

On Friday, PBR opened down then rallied most of the day, eventually hitting $11.68, engulfing the action of the two previous days. If it would have closed towards its highs, it would have made a very bullish engulfing pattern. But even though if fell back to the lows and in fact made marginal new lows on the close, down to $11.15, it still made a bullish Gravestone Marker pattern. I don't like that term, but instead like to call it a Flagpole. If you look at charts, you can pick out similar instances where a Flagpole is created and it usually results in a higher opening the following day, and you often get a one to two day rally. I plan to unload some of my shares on strength, but will continue to accumulate from this day forward, scaling into the stock down to $10 if it decides it wants to drop on down to the $10.17 target price.

Disclaimer:

The thoughts and opinions in this article, along with all stock talk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.

Disclosure: I am long PBR.

Additional disclosure: I may also buy CLF within the next 72 hours.

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