Just about every commodity chart looks identical - as we've discussed countless times. Frankly they look like bank stocks over the past 12 months.... broken down and beaten. Those banks stocks, however, have made large runs from time to time. But the question is will the commodities act like bank stocks did in the winter and spring (huge rallies that ended once resistance was hit?) or as they did more recently when some (mainly regional banks) broke through resistance and made nice runs ....
I don't know, so we are undertaking a simple strategy. Assume failure at resistance, and by doing so we will sell once a resistance area is reached. Then if we are wrong and this is the beginning of a new move upward, we can rebuy our position a bit higher on strength. For example, James River Coal (JRCC) is an excellent example - this has become our proxy for coal as we mentioned a few weeks ago. Instead of layering in and out of 4 positions in coal, we've been using JRCC to represent the group. Today the stock is up 10% and is now at a key resistance near $36. So our strategy is outlined above. We cut back here at $36 and (a) if this is an oversold bounce the stock will pullback or (b) if this is the beginning of a "new rotation" back into commodities we will pay up to buy it back on strength. Because if (b) plays out the move should be quite long lasting...
For now we are cutting JRCC to a 0.1% stake as it hits $36, down from a 1.6% stake. From the depth of its woes ($21s), the stock is up 71% in 5 sessions. Obviously 99.9% of us never bought it that low.... the stock is only back to where it was a few weeks ago before it was creamed.
Long James River Coal in fund; no personal position
