Shorting Opportunities in 3 Commodity Stocks

07/25/2013 7:00 am EST


These stocks may offer an attractive short-selling candidates for those looking to bet against some of the stellar run-ups already seen across Wall Street, writes the staff at Commodity HQ.

The bulls are at it again as major US indexes continue their relentless ascent into previously uncharted territory, with the S&P 500 Index (SPX) flirting right around the milestone 1,700 mark. Despite a few worrisome reports from bellwethers Coca-Cola (KO) and McDonald’s (MCD), corporate performance results have largely come in better-than-expected, especially on the financials front; upbeat operating results and optimistic outlooks from big banks including JPMorgan (JPM) and Bank of America (BAC) have helped to reignite euphoria on Wall Street following the recent stimulus fear induced pullback.

With the bulls still in the driver’s seat and most securities sitting on hefty gains YTD, many are hesitant to jump in long because the next correction feels like it’s just around the corner. As such, below we highlight three commodity stocks that may offer an attractive short-selling opportunity for those looking to bet against some of the stellar run-ups already seen across Wall Street.

The stocks included here are deemed to be great trading candidates for three reasons; first and foremost, each of these companies boasts a market cap upwards of $10 billion along with average daily trading volumes topping the $1 million mark, in an effort to weed out smaller, more volatile, trading prospects.

Second, these securities are trading below their 200-day moving averages, thereby implying that they are in longer-term downtrends. Lastly, these stocks are also trading above their five-day moving averages, which makes them attractive for swing traders looking to sell short before they resume their downtrend.

Newmont Mining (NEM)
Consider NEM’s one-year daily performance chart below. This Colorado-based gold miner has been rallying over the past week, but don’t let this bullish price action trap you; notice how this stock has been steadily falling since peaking at $57.93 a share, managing to post lower-highs and lower-lows while failing to summit its 50-day moving average (blue line) in virtually every instance. Given the clear downtrend at hand, we advise taking a short position as long as NEM fails to hold above the 50-day SMA.

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Petroleo Brasileiro (PBR)

Consider PBR’s one-year daily performance chart below. This Brazil-based energy bellwether has been stuck in a dismal downtrend since the end of 2009; PBR has been oscillating around its 50-day moving average, which has remained well underneath the 200-day moving average (yellow line), showcasing the long-term nature of this downtrend. Traders should wait and see how PBR behaves as it inches closer to its 50-day SMA; if PBR stalls around the $16 mark, jumping into a short position will make sense as it will likely retest its lows near the $12 level.

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Compania Vale Do Rio (VALE)

Consider VALE’s one-year daily performance chart below. This Brazil-based miner crossed below its 200-day moving average in late February of this year and has since failed to regain any meaningful bullish momentum. VALE has been making lower-highs and lower-lows while failing to re-summit the 50-day SMA in virtually every instance; as such, another failed attempt here should offer a good opportunity to get short before the stock retests $13 a share.

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As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques:

By the Staff at Commodity HQ

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