If you've been paying any attention at all to the commodity markets, then you know that opportunities abound in what the gold, oil and other commodity geeks like to call "stuff."
But unless you know exactly how to best take advantage of these opportunities, there is a pretty good chance that you might end up losing, instead of making money on a bull market that few think is anywhere near ending.
How many times have you looked at a market--in commodities or stocks--and wished that you had gotten in when prices were lower? Five percent lower, ten percent lower... it never really mattered. Just anywhere below where prices are "now."
While it may not appear that way when we are trying to convince worse selves NOT to chase stocks higher, the fact of the matter is that even the strongest bull markets provides opportunities from time to time for traders to climb in while prices have stopped, well, climbing.
In the business world, this type of opportunity is called a "sale." In the trading world, we simply refer to them as pullbacks. And we believe that pullbacks represent the best opportunity for traders to be able to take advantage of strongly trending markets. While other traders panic, believing that every pullback is harbinger of The End, we know that in strong markets--or at least in strong stocks--there will be far more pullbacks to buy than "Ends" to be avoided.
It may sound like an obvious point. But notice the next time a market that has been moving higher as strongly as the energy and commodity stocks have in recent days and week begins to correct. The first sellers--the silent ones--are often those who got in to position very early and are simply profit-taking. But as each successive wave of sellers comes to the market, they do so with less and less profit to take.
Soon, we are dealing exclusively with those who chased the stocks higher, bought in relatively late, and are now staring at moderate to potentially massive losses in their positions. Often, it is the selling of this group that helps deepen the pullback, drive the stock down into oversold territory and provide opportunities for traders who like to buy stocks when they are low.
A great many energy and commodity stocks, sectors that have performed exceptionally well over the past several weeks and even months, are starting to slip into these patterns. Having been in strong uptrends, their current pullbacks have come as a bit of a shock to some observers. Our concern, however, is simply that these stocks continue to pullback, the lower the better. Why? Because our research into short term stock behavior tells us that these stocks often make for excellent trades to the upside once their pullbacks have run their courses.
All five stocks in today's report not only have Short Term PowerRatings of 8 or 9, but also all five have significant exposure to the commodity or agricultural markets. This, in essence, is the theme that both groups them, as well as explaining why all five stocks have performed so well of late. A number of these stocks moved higher on Friday, making them somewhat less attractive as short term trading candidates. However, these are the kinds of stocks that traders should certainly keep an eye on. Should their Friday strength be succeeded by weakness early next week, then it is likely that a number of these names may become excellent trades in the short term.
The two numbers listed under 2-period RSI refer to the RSI on Thursday and the change in the RSI as of the close on Friday. The increases in RSI reflect the bounce that all five stocks experienced in Friday's trading.
Peabody Energy (BTU | news | PowerRating | PR Charts ). Short Term PowerRating 9. RSI(2): 42.65 from 8.92
U.S. Steel (X | news | PowerRating | PR Charts ). Short Term PowerRating 9. RSI(2): 61.75 from 9.02
Monsanto (MON | news | PowerRating | PR Charts ). Short Term PowerRating 8. RSI(2): 61.21 from 3.28
Transocean (RIG | news | PowerRating | PR Charts ). Short Term PowerRating 8. RSI(2): 51.83 from 8.84
Apache Corporation (APA | news | PowerRating | PR Charts ). Short Term PowerRating 8. RSI(2): 56.61 from 5.82
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David Penn is Senior Editor at TradingMarkets.com.
