The bears arrived on Wall Street with little warning and dragged the S&P 500 Index down almost 8% in just one month after the benchmark peaked on September 19th before finding a bottom in mid-October. Since 10/15, major equity indexes have rebounded sharply, with the S&P 500 gaining over 3% in just one week, perhaps signaling that the recent round of profit taking might be over as we head into the final stretch of 2014 [for more commodity futures news and analysis subscribe to our free newsletter].
Despite the recent rebound on Wall Street, commodity-focused stocks as a whole remain at the bottom of the barrel. Energy stocks in particular are still recovering from the steep losses seen over the past few months as a result of falling oil prices combined with slowing global growth concerns and a U.S. dollar rally. As such, below we take a look at commodity stocks that have been enjoying stellar uptrends, but are still playing catch-up in relation to the broad market, 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 $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 above their 200-day moving averages, thereby implying they are in longer-term uptrends. Thirdly, these stocks are also trading below their 20-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].
CF Industries (CF)
Consider CF’s one-year daily performance chart below:
This stock has been chugging along higher within an upward-sloping channel (blue lines) over the past year; more specifically, CF has managed to rebound off its lower-support boundary on several occasions during this time frame. The stock recently endured a fairly steep correction, which brought it down to its 200-day moving average (yellow line). Since finding a bottom in mid-October, CF has managed to rise above its 200-day moving average once again. Even more encouraging is the fact that CF has re-entered its longer-term channel. As such, we advise taking a long position at current levels in anticipation of a rebound; be sure to utilize a stop loss around the recent lows at $240 a share in case another round of selling strikes.
YPF S.A. (YPF)
Consider YPF’s one-year daily performance chart below.
This stock has been trading within a fairly well-defined channel (blue lines) over the past year. Much like CF’s chart featured above, YPF has also managed to rebound off its lower-support boundary on several occasions in 2014. As a result of the recent sell-off on Wall Street, YPF came down to a support level that it managed to rebound off in mid-June of this year. Currently, this stock has managed to settle back above its 200-day moving average as well as re-enter its longer-term trading channel. As such, we advise taking a long position at current levels in anticipation of a rebound over the coming weeks; be sure to utilize a stop loss around the recent lows near $28 a share in case the bears make another appearance.
Disclosure: No positions at time of writing.