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03-08-10 Weekend Recap, Sector Spotlight, Metals and Mining, XME:

|Includes: CLF, CMI, Joy Global Inc. (JOY), X, XME
Indexes: The markets are going up. No news there. After an 8% to 10% correction in the Indexes, we’re back to square one with the start of the year. We expect the uptrend to continue for another 20 points on the SPX and then we may pause or consolidate. But SPX 1200 and 1250 beckon. We tested the 200 week moving average in January and corrected. Now we’re right back to it and poised to break through.  Its when, not if. Might we fall back into a double dip recession? Maybe, but my money is on a recovery, despite the absurd Health Care entitlement plan proposal, Cap and Tax and the rest of the non-sense proposed by those who want to redistribute all wealth. If we see the Health care plan defeated, we zoom higher. That’s our catalyst for SPX 1250. Meanwhile we try to hit singles with our trades and be in position to participate in a broad, big rally when it finally comes.
So, our task is find those stock that have juice and have something to prove. Some of our favs corrected far more than 10%, some as much as 25%. We got back into some key stocks.  We’ll identify over the course of this week what’s in our portfolio of traded stocks and our trading plan for each. We trade some of the same stocks in which we invest through our IRAs and other retirement accounts. We will also evaluate some of the same stocks in the intermediate to longer term mode, i.e. why we’re in them longer term and what it will take to cause us to sell them for other opportunities. Here’s the first sector:
Sector: XME, metals and mining. XME has rebounded form 45 to 56, a 24% move, sweet. We held it in our trading account but gave way to buying more BUCY, JOYG, CLF and X.  XME on the daily char is in a volatility squeeze expansion and riding the upper BB. On the weekly chart, it is not quite up to the upper BB, with resistance around 60. Here is a little snap shot of what’s in XME, and the % held:
Alcoa Inc.
4.18
Allegheny Technologies
4.66
Alpha Natural Resources
4.16
Arch Coal, Inc.
4.1
CONSOL Energy Inc.
4.28
Massey Energy Company
4.2
Nucor Corporation
4.18
Patriot Coal Corporation
4.55
Titanium Metals Corporation
4.49
United States Steel Corporation
4.43
 
 X:  US Steel , an XME component ( with AKS, X is surrounded by takeover rumors)  @ 59 has another 10% before it hits some real resistance @ its 200 week moving average around 64, and it supper weekly BB around 69. That hwy in the trading account we dropped XME and in part slid into X. A lot of people may want their money back around the low 60s. But I will ride X until it falters, as the upside can be another 15% in not a very long horizon. If we close above 64, we could push through 70. We don’t know, but with a market cap around $12m and a two year ago high at TWICE its current price, we’ll ride with X. Betting on a world wide cyclical recovery?  X is your bogie.
CLF: The China trade. CLF has its 200sam, 50eam and 20sma stacked, one above the other and has separation to well above the 20sma, on its weekly and daily charts. It OBV (On Balance Volume measuring big money accumulation, points almost straight up). CLF reported great earnings as well. Looking at daily chart, using a 10 day sma, it has stayed above it for 18 straight trading days. Strong as it gets. I ride this until it breaks the 10 day sma, and then look to reenter. I plan on being in this until it hits 100. Its just one bull flag after another.  Selling metallurgical and thermal coal and iron ore, its in the China/cyclical industrial recovery sweet spot. (See out Outlook 2010 for why we are betting on this).
BUCY: Wow, what a company. According to some, stole Terex large shovel business which will double its addressable market. A virtually recession proof company. It sells parts and repairs the many very old mining equipment  and drag lines, and builds with guaranteed non-cancellable contracts these huge mining machines (about 4 times the size of the average large suburban home) bought by government owned enterprises and huge extracting companies. Also known as the sweet spot for a cyclical recovery and countries developing natural resources. Along with JOYG, one of the few companies in this key business. BUCY is near resistance, its January high was around 69, its 66 now. On a daily chart its riding just below its upper BB in a solid uptrend. After it fights through 70, I expect to see 90 on this one. As strong on fundamentals as almost any company. We added some JOYG on a pullback after it smoked earnings estimates, as BUCY has come so far (from 11 earlier this year, we got in around 19). But we intend to ride both of these, with the hot hand for the foreseeable future. we might not see a double, but a steady climb another 25% would be fine.
JOYG: Pretty much same chart and dynamics as BUCY but has lagged a bit. Playing catch up after great earnings.  So we added this and trade the hot hand between it and BUCY.
CMI: My old Indiana favorite…making truck engines, trading around 60.  This chart is so strong. On a weekly chart, Cummins traded sideways for 7 months, formed a volatility squeeze and is riding the upward expansion. We caught 25% of that move. I think it hits 70 and will ride until it falters. Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide. CMI just might be in the sweet spot for alternative energy. The combination of diesel, nat gas and electric is intriguing. The Engine segment offers a range of diesel and natural gas powered engines for the heavy-and medium-duty truck, bus, recreational vehicle, light-duty automotive, agricultural, construction, mining, marine, oil and gas, rail, and governmental equipment markets. CMI is definitely in the cyclical recovery sweet spot.
 
BUCY, JOYG and CMI might be viewed as Industrials, or Manufacturing. Cummins certainly is Energy related. Notably, 29% of the XME metals and mining ETF are Energy stocks, like coal.
We’ll get into more sectors soon, like TECH!


Disclosure: LONG ALL LISTED.