Major equity indexes have continued their seemingly perpetual ascent, although the last few legs higher have been accompanied by an uptick in volatility. The recent choppiness in the market amid all-time highs has yet again prompted countless pundits to forecast that a steep correction is just around the corner [for more commodity futures news and analysis subscribe to our free newsletter].
There are plenty of risks that could spark the much-awaited pullback; on the home front, disappointing earnings from corporate bellwethers can easily set off a wave of worry and profit taking on Wall Street. Overseas, tensions between Russia and Ukraine are heating up again while the crisis in Iraq only appears to be intensifying. Furthermore, the recent scare from Portuguese Banco Espirito Santo served as a rude reminder that the eurozone remains financially fragile.
Nonetheless, the bulls remain in the drivers’ seat, and as such, below we take a look at two commodity stocks that are trending higher, but are still lagging behind broad-based equity benchmarks, thereby offering an attractive opportunity to “buy on the dip” in the near future.
The stocks included here are rated as “buy” 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 above their 200-day moving averages, thereby implying they are in longer-term uptrends. Thirdly, these stocks are also trading below their five-day moving averages, which makes them attractive for swing traders looking to buy in before they rebound. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques [see 5 Commodity Trading Mistakes You Could Be Making].
Potash Corp (POT)
Consider POT’s one-year daily performance chart below:
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This stock has been rising within a well-defined trading channel (blue lines) since bottoming out in August of 2013 just below $30 a share. Since then, POT has managed to break above its 200-day moving average (yellow line), thereby reversing its downtrend that had persisted since mid-2013. With POT currently trading along the bottom support line of its longer-term channel, we feel entering a long position near current levels makes sense; we would advise utilizing a stop-loss around $35 a share in case the uptrend at hand breaks down.
Equitable Resources (EQT)
Consider EQT’s one-year daily performance chart below.
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This stock has climbed higher along an upward-sloping trend line (blue) since November of 2013. Recently, shares of EQT have pulled back to a support level (red line) that the stock previously managed to rebound off, as seen in mid-May and mid-June of this year; furthermore, this support level also happens to be a former resistance level that the stock managed to summit in April. As such, we feel that this red line should act as a key support level, while a break below it would call for re-assessment of the uptrend at hand. For those jumping in long in anticipation of a rebound, we advise utilizing a tight stop-loss around $100 a share in case EQT falls prey to more serious profit taking pressures.
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Disclosure: No positions at time of writing
Good insightful article