In today’s environment of computers and software programs, it’s amazing how difficult it can be for some traders to see the most obvious of trades. Ironically, the “keep it simple stupid” trades tend to be the better ones anyway. Although that doesn’t mean the trade will work out in your favor, at least you knew it was the right trade at that time. A stock with a trading opportunity that fits that description would be CLF (Cliffs Natural Resources, Inc.).
Cliffs Natural Resources Inc. is an international mining and natural resources company. The company is an iron ore producer and a producer of metallurgical coal. Cliffs’ operations are organized according to product category and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Ferroalloys, and its Global Exploration Group. The company operates in four segments: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal and Asia Pacific Iron Ore. In the United States, it operates five iron ore mines in Michigan and Minnesota, five metallurgical coalmines located in West Virginia and Alabama and one thermal coal mine located in West Virginia. It also operates two iron ore mines in Eastern Canada that primarily provide iron ore to the seaborne market for Asian steel producers.
Please review the 1 yr chart of CLF (Cliffs Natural Resources, Inc.) below with my added notations:
CLF has been trading sideways for the last 6 months. During that time the stock has been holding a very important level of support at $60 (navy), which you can see from the end of the October until the present. No matter what the market has or has not done over the last 6 months, CLF has not broken below $60. Currently, the stock appears to be making its way back down to that support level again.
The Tale of the Tape: CLF has a very important support at $60. A long trade could be made on a pullback to $60 with a stop placed under that level. IF the stock were to break below $60, a short trade should be made with a stop placed above $60.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT