5 Stocks With a Bearish Look
Short M&M’s Anyone?
Perhaps it’s time to put on the contrarian hat and re-visit metals and mining stocks. Aside from the macro tide that could be turning against the sector in the long-run, the near term is looking more and more like a blow-off top could be underway. The group has had the wind at its back with a declining dollar and surging demand in emerging markets, but with a coordinated defense from further declines in the Dollar underway by the Treasury and Fed, that tailwind has been neutralized. Furthermore, record breaking prices after a parabolic run in these stocks since the start of 2008 is leading to what PhD laden economists like to call “demand destruction”, although that term is more applicable to oil, there are similarities in metals attributable to substitution. Stock prices have gotten way out in front of earnings growth for now and although setting up short trades would be counter to the primary long-term uptrend’s, in the near term stock has been liquidated by institutional holders that won’t return to the bid for some time. As the June 30 mutual fund redemption deadline approaches, these are the stocks the funds will tend to be unloading in preparation to meet redemptions. Remember, June 30 is the first available redemption following the blood bath in March.
So here are a few names to consider for potential short positions. I would probably build the position slowly by cherry picking into intraday rallies while keeping a position stop above a new all-time high. US Steel (X) is up 75% since the start of ’08 and the move has been a straight line spike. I wouldn’t short Steel but keep an eye on it as a sector proxy.
Mechel (MTL) has multiple bearish diverging indicators and strength was aggressively sold into on Tuesday, June 03.
Nucor (NUE) around $75 is failing at new highs but prices are also at the upper boundary of a long-term uptrend. I could see a drop to $60 and still have the uptrend intact while a drop to $68 is highly likely.
Carpenter Tech (CRS) has bucked the uptrend all year and now with the sector turning over, the sell-off in Carpenter is accelerating. Sell into any rallies but watch the 200w-EMA at $48.
Great Northern (GNI) has been under distribution all year as I imagine all the large mutual funds have been selling the stock in waves. I see GNI testing $90 from current levels around $118.
The uptrend in Steel Dynamics (STLD) looks poised for a sharp correction below $30 but the fundamentals remain strong for this producer so I wouldn’t look out farther than a few months on this.
