With the dollar rallying most of the past week, materials and commodity stocks have consequently sold off hard and US Steel is no exception.  Since October 11 (in just two weeks), the stock has pulled back 13.51%.

Trading is all about finding the right time to buy.  Many investors strictly look at company fundamentals (earnings, cash on hand, debt, price to earnings ratios, etc) to place trades.  Problem is fundamentals will tell you WHY to buy a stock, but not WHEN to buy.  That is where technical analysis comes in.  Using chart patterns and momentum indicators, we can tell when the highest probability of a good trade will occur.  And at Company Invest, we think right now is a great time for a US Steel trade.

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the 3-day relative strength index, a favorite swing trading indicator at companyinvest.com.  As you can clearly see, this indictor is WAY oversold (brown area). Look at what happened the last 5 times the RSI was this oversold (green circles).  Now look at the corresponding green arrows on the price chart that indicate trade entry points.  Each entry point resulted in a minimum of a 10% gain!  And here we are again…

“B” is the daily stock pricing chart (going back to mid May).  “Support” is very important in technical analysis.  Support happens when the big investors (pension funds, hedge funds, 401k fund manager) come in and buy.  We’ve illustrated two key levels of support on this chart (S1 and S2).  US Steel has been trading right at the S1 support level for the past three trading sessions without falling below it.  In this case it means buying the stock at $40 and change is a great entry.  Notice how the $40 level was also key support back on June 7.  And should the S1 support break, the next support level (S2) is the $37 area.

Also, the red selling volume bars have been getting shorter over the last 3 trading sessions while the stock has been basing.

“C” is the MACD histogram which gives nice advance signals for stock directional change.  Although you can see selling momentum has been occurring (stair step down blue bars), it looks as if a bullish divergence is occurring between the MACD histogram and the price chart (green line in “C” Vs. red line in “B”).  Simply put, it looks as if a higher low is setting up on the histogram, while at the same time a lower low has occurred on the price chart.

“D” is the slow stochastic momentum indicator.  At 8.88, it’s also deeply oversold.  Look for the signal line (black) to cross up through the MACD line (red) in the next day or two.  Multi day rallies in the stock occurred the last 4 times this signal was triggered (green circles).

Company Invest Bottom Line:   Grab US Steel (X) here and point your stop loss order in just below support at around $39.95.  A $44 price target could be hit in just a few trading days.

Today’s Company Invest pick is Bank of America (BAC) — another selection from the financial sector.  At CompanyInvest.com, we will only select stocks for trades that are not overbought, but right now most of the market is terribly overbought so it becomes a challenge to find stocks to trade.  Think of buying at wholesale and selling at retail.  We’re always looking to buy stocks when they are on sale.  In just two weeks time, BAC has pulled back 11%.  Now could possibly be a great time to enter a BAC position to the long side.

COMPANY INVEST TECHNICAL ANALYSIS

Looking at the daily chart, “A” is the slow stochastic indicator which measures buying/selling momentum.  A reading of 80 is considered overbought, while 20 is considered oversold. Today’s reading is at 7.30, way oversold.  Also, BAC has moved into oversold territory and out twice prior to now.  You should always buy when the stochastic indicator is on the bottom, so the extreme oversold status here is bullish.

“B” is the daily price chart of BAC going back 6 months or so.  The first thing to look at are the red and gray volume bars below the pricing candlesticks.  Look at the selling volume (red bars) that occurred last week. Those high volume bars could suggest “capitulation,” which occurs when panic selling happens and everyone is selling the stock.  A shakeout of sorts. Since then the red bars have been shorter indicating the selling is slowing down.

Next. we drew parallel red trend lines illustrating the downtrend that has occurred in BAC since last April. From these trendlines it looks like we have a low target of just below $11/share, and a high target somewhere between $13.30-$13.40.  So if you buy BAC near $11 and it runs to $13.40, there is a possible 21.81% gain to be made on the upside here.  We like that number!

Finally, “C” is the 3-day Relative Strength Indicator (RSI).  The 3-day RSI gives great swing trading (2-3 days to 2-3 week hold) signals.  Right now the RSI is way oversold (note the brown areas).  If you look at the last 8 times the RSI was this oversold, there was a rally of some magnitude ALL 8 times (The green arrows in the price charts indicate the trade entry points based on the RSI buy signals).

Company Invest Bottom Line:  Buy BAC here and put a stop loss order in at $10.47.  That way your risk is very low, while the potential reward is quite high.

What a roller coaster of a week.  Monday, the market shot straight up;  Tuesday’s news of slowdown in China brought it back down.  Wednesday, rally on light volume; then today was a day of indecision: the market opened up, soared higher, sold way off on a dollar reversal, then rallied at the end of the session for a nearly flat finish.

What is interesting this week is what happened to the dollar.  The dollar can be tracked using the ETF “UUP”.  We’ve had a reversal in the dollar and, what looks like, an ensuing correction in precious metals and commodities. 

The following is a recap of recent picks from this site (which are all doing really well!!):

DZZ (Short Gold ETF):  On Oct 17 we said to watch for a rally in the dollar. The chart showed that the dollar was sitting right on support.  We recommended DZZ (short gold), DUG (short oil) or MWN (short mid cap stocks).  What Happened: DZZ has had a wonderful reversal rally week and looks poised to go higher.  The others are doing well too.  The DZZ chart also produced “buy” signals with a bullish 3/10 EMA cross.  It was trading around $8.35 when we recommended it, and has since rallied nearly 11%!!  What to do next:  Look to add to DZZ on the next pullback as it will likely go higher.

Home Depot (HD):  On Oct 19 With HD trading at $30.50, we said to grab it for a run to $33.  What Happened: A great trade is ensuing.  HD is currently trading at $31.81 and looks to go higher in the short term towards our price target.  What to do next:  Hold.

Sallie Mae Corporation (SLM).  We caught this stock at the bottom of a well defined price channel and said to grab it under $11.50 for a possible run to $13.  we said to put a stop loss order at $10.89 (meaning when the stock trades below $10.89, your internet broker will automatically sell all your shares).  What happened: The stock is hanging in there, consolidating, currently at $11.40.  A run to $13 could easily be in the cards.  What to do next:  Hold.

Three great trades this week!  We feel best about the DZZ trade though as the dollar will likely continue to rally in the short term, driving gold and silver down.

Good luck!

Today’s Company Invest pick is student loan giant, Sallie Mae Corporation (SLM). Most stocks are WAY overbought right now in this market that keeps going up despite horrid fundamentals and one bad economic report after another. So we need to choose stocks that have had a sizeable pullback for the best possible trade target.

SLM is part of the financial sector, which, up until today has been battered recently.  At a share price under $11.50 it’s also affordable for the averageinvestor.

COMPANY INVEST TECHNICAL ANALYSIS

1st thing on the chart “A” the slow stochastic is quite bullish and has moved to oversold, out andback, now it’s trending back up again at over 29. Odds are, this time it goes back to 80 again, and the stock will move up with it.

“B” is a 3/10 exponential moving average crossover I like to use sometimes. Notice how good the signals are when the blue line (3) crosses up or down through the red line (10). And tomorrow will likely bring another bullish cross.

“C” the MACD D histogram (blue bars) are definitely showing a reversal and the signal line (black is about to cross above the MACD D line (red).

Company Invest Bottom line: Grab it tomorrow with a stop at 10.89 (right below Tuesday’s low).  It could go to $13 on this quick little run (see green parallel trend lines).

Today at Company Invest, we focus on the retail sector and today’s pick looks like a great trade.  It’s Home Depot, member of the DOw 30, and the largest home improvement retailer in the country.

While the S&P and DOW have continued to go up, retail has taken a beating over the past 5-6 trading sessions, meaning it’s a good buy because we always try and buy stocks on sale. But looking at the daily chart, HD is in a great spot for a swing trade for a possible 10% pop to the upside.

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the 3-day RSI.  The three day timeperiod is ideal for swing trades.  Look at the pattern of green circles to see that when the stock is this oversold, it nearly always rallies for 3 or more days.

“B” is important for two reasons.  #1, today’s candlestick was a “hammer.”  Look at the long tail, indicating strong support.  #2, notice where the stock closed today.  Right exactly at the 200 day moving average (major support). The trade is ideal, because if we open up lower in the morning, you could buy it below $30.50 and put a stop right at $29.75 (the 50 day moving average (blue line)).  Your risk will be less than .75 cents, but you could easily pick up $3-$4 on the upside at a target  of $33.

The MACD histogram “C” (blue bars) failed to put in a lower bar today.  Look for a higher bar tomorrow for confirmation of a reversal.

Finally, “D,” the stochastic oscillator, which measures momentum, is bottomed out, while at the same time the stock is sitting right on support.

Company Invest Bottom Line: Grab it here, stop at $29.75 for a run to $33.

The greenback has been the key to nearly the entire 70% rally the market has seen since March, 2009.  Simply put, when the dollar goes down, stocks have went up, and visa versa.  This is especially true with commodities.  We at companyinvest.com expect a multi week pop in the dollar because the fed may want to increase its value right before it revs up the printing press to print more dollars to buy treasuries with (quantitative easing).  Further QE, should the fed do it, will crush the value of the dollar.

The following chart is the weekly chart of UUP (which is an Exchange Traded Fund (ETF)) representing the dollar’s movement.  Weekly charts are useful because they are longer term and could illustrate investments of weeks to months in duration.

On the chart you can see the RSI “A” is nearing “30″ which is extremely oversold.  Stocks and ETFs can stay oversold for prolonged periods of time, but this looks to be a decent entry point.

“B” is the weekly candlestick.  It’s a red candlestick, indicating the ETF lost value last week, however it is a “spinning Top,” which illustrates indecision.  It shows that during the week UUP traded both higher and lower than where it opened and closed.  This could mean UUP is ready to reverse.  A “Spinning top” sort of looks like a plus sign.  Compare that with the previous weeks red candles. Do you see a difference?

“C” is important.  “C” is a long term trendline of price support going back to early 2008.  Notice this week’s candle tagged that support line and bounced off of it.

“D” is the MACD.  Watch its final print next Friday, 10/22 and see if the histogram “blue bars” put in a shorter bar.  If so, that is a directional change and a buy signal.

“E” is the slow stochastic. Notice it went from below 20 to back above, and now it’s back dowm below 20 again.  That’s a bullish signal.  When the black line crosses up through the red line you could potentially have 1 to 3 months of buying before the black line gets all the way to “80″ again (overbought).

Bottom Line:  You can buy UUP here for a longer term trade, but instead I would look at buying either DZZ (short gold), DUG (Short Oil services), or MWN or QID (short midcap stocks, and short tech).

Sometimes simple is better.  The following strategy, developed by Dr. Charles Schaap in his book, “Investing for Success,” is a very simple, yet effective way to profit in this market.

 The essence of the system is catching a trend and riding it.  In this case, Dr. Schaap uses only two indicators to define a trend.  They are “A” the Relative Strength Index (RSI), and “B” the 50 day moving average.  When the 20-day RSI moves above 50 and the stock trades above the 50 day moving average, that is a buy signal. When the reverse happens, it is a sell (or short) signal.

 The RSI, “A” is an indicator that measures a stock’s recent performance against it’s past performance.  In this case, Schaap uses an RSI value of “20″ (default is normally 14).

 The 50 day moving average “B” is widely used in technical analysis and it a standard indicator of market health.  Simply put, if a stock is trading above its 50 day moving average it is thought to be healthy and bullish.  Below, it is struggling and bearish.  With this strategy you can use either the Simple Moving Average (SMA) or Exponential Moving Average (EMA).  These settings can be found on most charting platforms.

 The following is a daily chart of the S&P 500 Large Cap Index ($SPX).  It spans a 1 year timeframe.  The green arrows represent buy signals.  The red arrows represent sell (or short) signals.

Now imagine if all you did was buy the SPY at the green arrows, and buy the SDS (short SPY ETF) at the red arrows.  You would have made one heck of a return at the end of the year and would have beaten all the mutual fund returns.

Bottom Line:  If you would have put all your money in the $SPX and left it there all year, you would have a paltry 4.7% year to date return.  However, using the 50/50 strategy, you would have made 22.56% year to date.

As you can read from the previous Company Invest blog, we’re bearish at this point in time, so it becomes difficult to recommend many stocks for a trade.  The S&P is way overbought right now, as are most individual stocks.  In addition, the market is moving up now based on anticipated federal reserve stimulus measures and not on economic fundamentals.   This all indicates to me that we will see a significant correction sometime in the not too distant future.  When is the only question.

Today’s Company Invest spotlight is the James River Coal Company (JRCC).  At $17.00 it’s an affordable play for the average investor.  And, being a commodity/energy stock, it tends to move up as the dollar goes down, which has happened since early September.

COMPANY INVEST TECHNICAL ANALYSIS

“A” is the Slow Stochastic indicator.  It just curled back up at the “50″ level and got a bullish cross (black line crossed up through the red line).  80 is considered overbought, so this stock could have a little run left in it.

“B” is the upward channel the stock has been trading in.  Based on the channel, a move up to 18.25-18.50 could happen in the next 3-5 trading sessions. While that doesn’t sound like much of a move, if you had 500 shares on, you could make a $750 profit in just a few trading days. Also, notice the “tail” on today’s red candlestick.  A long tail like that indicates a short term bottom.

“C” shows there was light volume today on a selling day.  Volume has been heavier on up days, which showindicates more buyers than sellers.

“D” shows the MACD is above the zero line and in bullish territory.

Company Invest Bottom Line: Grab it for a trade with a stop below $16.  You could get $2+ out of it in a short timespan.

Seasoned investors know all about “shorting” the market, but many newer investors do not.  When you “short” a stock, you borrow shares from your broker, immediately sell them (with the hope they will go DOWN in price).  Then if they do go down, you buy them back a lesser price, return the shares to your broker and you keep the difference.

(e.g., You short 100 shares of Alcoa (AA) at $13.00 per share.  In a week, the price of AA drops to $10/share.  You’ve just made a profit of $3/share or a quick $300 profit.)

If this sounds complicated, don’t worry. There are dozens of “short” ETFs (Exchange Traded Funds) around that you can trade.  An ETF is similar to a mutual fund, but can be traded like a stock (you can buy and sell shares intraday).

Today’s Company Invest pick is MWN.  MWN is a triple-leveraged ETF that is short the “midcap stocks.”  It seeks a return that is 300% of the inverse (or opposite) of the price performance of the Russell MidCap index.  Simple put, when the broader market goes down (S&P, Russell), this fund will go up fast.

You can see from the chart that MWN has taken a beating lately since the market has been rallying.  That is a good thing.  You want to buy stocks or ETFs AFTER they selloff, or when no one wants them.  It’s like buying wholesale instead of retail.

COMPANY INVEST TECHNICAL ANALYSIS

“A” shows the 3-day RSI in an oversold state.  This is a buy signal for a short term trade.

“B” shows the stock price sloping down, while the stochastic lines “D” are looking like they will slope up at the same time.  That is a positive divergence and another buy signal.

“C” Is the MACD histogram.  This is a nice predictor of trend change. As you can see, the blue bars have been getting smaller and are headed for the zero line. The last two times this happened (see other green arrows), the stock rallied by several dollars both times. Look for the bar to break above zero soon.

Finally, “D” is the slow stochastic, a measure of momentum. The best signals occur when the lines enter oversold territory (<20), go back above, then go back down below 20 again.  As you can see, this has happened.

Company Invest Bottom Line: At $13 a share, MWN is hard to pass up.  Grab 100 shares and put a $1 stop in.  That way, the most you could lose is $100, while you could easily make $500-$1,000 on the upside.  A great risk/reward play.