2 Commodity Stocks To Sell On The Pop: BHP, VALE

The ongoing government shutdown continues to eat away at investors’ confidence, even though major equity indexes are undeniably pricing in a resolution, as evidenced by the S&P 500′s ability to keep afloat while the debate in Congress rages on. Given the degree of optimism that has permeated Wall Street, it’s likely that a lack of resolution among politicians will lead to a nasty sell-off, as always, catching retail investors off guard [for more commodity futures news and analysis subscribe to our free newsletter].

Given the recent “hope rally” and looming debt-ceiling deadline, many remain hesitant to jump in long. 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 $10 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]:

Compania Vale Do Rio (VALE)

Consider VALE’s one-year daily performance chart below.


Click to Enlarge

VALE has staged an impressive rebound over the last few months, rising along an upward-sloping trend line and posting higher-highs along the way. This stock has neared a dangerous area, however, in recent days, prompting many to lock-in profits and others to get ready for a short trade; notice how VALE failed to summit the same resistance level at $17 a share (red line) on several occasions last month. Conservative investors should jump in long only after this stock has established definitive support above its 200-day moving average (yellow line).

BHP Billiton Ltd. (BHP)

Consider BHP’s one-year daily performance chart below.


Click to Enlarge

BHP is exhibiting a similar price pattern to VALE; this stock has been rebounding over the last few months, but remains underneath its 200-day moving average (yellow line). BHP is also nearing an area of historical resistance; notice how this stock failed to summit the $70 level (red line) earlier in April, twice in May, and most recently again in September, only to fail after each breakout attempt. Investors should consider waiting until this stock is back above its 200-day moving average before jumping into a long position, given the possibility of another reversal fakeout.

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Disclosure: No positions at time of writing

This entry was posted in Energy, Industrial Metals, Trading 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.

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