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TRADING SYSTEMS


CLF Too Late To Sell?

07/29/11 09:15:48 AM
by Donald W. Pendergast, Jr.

Some natural resource stocks are looking vulnerable right now. Here's a look at a very interesting chart setup in a key player from this sector.

Security:   CLF
Position:   N/A

Cliffs Natural Resources (CLF) shares have been in the process of tracing out a very large and noticeable consolidation/trading range pattern since peaking in mid-February 2011 along with many other stocks, and the big question now is whether the recent swing lower will bottom soon, or if it is destined to break down below critical support in the $79 to $80 price range.

FIGURE 1: CLF, DAILY. That lower support level near $79 to $80 looks awfully solid. Traders going short now might want to use that area as a general price target to help guard against an unexpected, violent short-covering rally.
Graphic provided by: MetaStock.
Graphic provided by: Gil Raff Expert Advisor from MetaStock 11.
 
At the close of trading on Thursday, July 28, 2011, the Gil Raff MarketSpace Stock system expert in MetaStock 11 fired a sell short signal (see green oval on Figure 1) on the CLR daily chart. With a full $9.00 to go before the lower end of the pink-shaded consolidation pattern is reached, this actually looks like a short signal worthy of consideration. The long-term Chaikin money flow (CMF)(100) is mired in the depths of bearish territory, suggesting that the most recent swing lower could be the start of a larger-scale decline. There could always be a market reversal soon, egged on by news of a budget deal (akin to shuffling the deck chairs on the Titanic?), so if you choose to go short this setup, please be aware that virtually anything can happen in the financial markets -- anything at anytime!

Instead of suggesting that traders buy a put here, how about just sitting still for a while to see how CLF acts if that $79 to $80 price support zone is reached. Believe it or not, that area could be a great time to sell a near-term out-of-the-money put, especially if the broad market also stages a major rebound around the same time.

So consider just waiting for $79 to $80 to be reached before deciding to take action in shares of CLF, unless you are a real fan of mechanical trend-following systems and want to go all-in on a short trade right now. Whatever you do, just be sure to limit your account risk and use a logical and nonnegotiable stop-loss order. You'll be glad you did, no matter how the trade eventually turns out.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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Date: 08/02/11Rank: Comment: Dear Mr Pandegrast, Kindly chart AXL for us. Thank you, Petrus Kuntjoro
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