Contrarian Alert: Is It Time To Buy Cliffs Natural Resources (CLF)?

The party continues on Wall Street; investors remain bullish on stocks judging by the sheer price action as both the S&P 500 and Dow Jones Industrial Average managed to close out last week well above their all-time highs. The economic data front is sending hints of a potential downturn as manufacturing indicators remain weak; nonetheless, this has failed to put a noticeable dent in the bulls’ armor of confidence as markets shrugged off last week’s worse-than-expected industrial production data [for more market news and analysis subscribe to our free newsletter].

Not every stock is surging to record highs; in fact, one particular large-cap miner offers a risky, but compelling, opportunity for investors still looking to get a piece of the action on Wall Street. Contrarian investors should add Cliffs Natural Resources (CLF) to their watchlist because this former S&P 500 sweetheart is resting on major historical support, thereby offering a great entry point for those with a bullish outlook for the steel industry and the global economic recovery as a whole.

Chart Analysis

Consider CLF’s 10-year weekly performance chart below. This stock has endured a downtrend since peaking in mid-2011 and it has failed to take part in the 2013 bull run seen across Wall Street. What’s noteworthy is the fact that CLF is trading and holding right at a major support level (red line) which it previously rebounded off in mid-2009; after this, it posted a monstrous gain when it surged to over $100 a share in just two years. CLF has also seen above-average buying volumes swoop in at these low levels over the past few weeks, perhaps suggesting that institutional buyers are loading up on this bargain miner.

Click to Enlarge

Consider CLF’s year-to-date daily performance chart below. Notice the big volumes on 3/27/2013; what’s even more encouraging is that CLF has manage to hold above $18 a share while slowly climbing higher along a rising support level (blue line). Another encouraging sign is the above-average buying volumes see on 4/25, which further adds weight to the bullish argument at hand [see 5 Commodity Trading Mistakes You Could Be Making].

Click to Enlarge

Investors looking to jump in long should be mindful of the overarching risks plaguing this stock; fundamentally, iron ore mining has seen very sluggish growth due to the stagnant global recovery, while technically, CLF is still stuck in a long-term downtrend.

Outlook

Hints of global growth should drive this stock higher as increased steel production requires iron ore, which is CLF’s staple. In terms of upside, the next resistance level for this stock comes in at around $25 a share. On the other hand, a broad-market correction can easily sink it back below $20 a share, while a break below $17 a share will likely welcome serious selling pressures. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.

Disclosure: No positions at time of writing

This entry was posted in Commodity Trading Outlook, Commodity Trading Trends, Steel and tagged . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

Related News Stories