Much to the bears’ frustration, the stock market bulls came out on top in 2013 as clouds of uncertainty blanketed the world of commodities. Persistent fears over slowing growth in China continue to put a damper on demand for natural resources; however, the industrial metals finally appear to be reversing course after a string of encouraging regional manufacturing reports [for more commodity futures news and analysis subscribe to our free newsletter].
Amid the ongoing bull market at home, many remain hesitant to jump in long given the magnitude of the current run-up ahead of the potential budget drama that could arise and spark a correction well ahead of the February 7th debt-ceiling deadline. As such, below we highlight two 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 $1 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. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques [see How To Lose Money Investing In Commodities].
Kinder Morgan Inc. (KMI)
Consider KMI’s one-year daily performance chart below.
This stock has staged a furious rebound over the last few weeks, helping to erase a large portion of the losses accumulated in the final trading month of 2013. Despite this rally, however, KMI remains stuck in a worrisome downtrend; notice how this stock has managed to post lower-highs (blue line) and lower-lows (red line) since peaking at $41.49 a share on 5/21/2013. Furthermore, this stock has previously failed at surpassing resistance between $36-$37 a share as seen from September through the end of November last year. Given the longer-term downtrend at hand, we advise entering into a short position whenever KMI shows signs of struggle to hold above $36 a share.
LinnCo LLC (LNCO)
Consider LNCO’s one-year daily performance chart below.
This stock is nearing a major resistance level (red line) which it has previously failed to summit on several occasions since sinking to $23 a share in early July last year. Notice how LNCO has previously failed to settle above $32 a share, after which it has proceeded to correct lower and then trade sideways in every instance. With LNCO nearing this same resistance level again, we advise active traders to take a short position as the stock shows signs of struggling to hold its ground above $32 a share.
Disclosure: No positions at time of writing