While my heart is with growth stocks, there’s no question that many commodity stocks are doing well. My bias against them at this time is that most lack any sort of sales or earnings growth. And my own experience investing in shrinking or money-losing operations, frankly, is not good. I usually lose money when I toil in such fundamentally unsound stocks.
However, I’m also a tape-reader, and some of the best price-volume patterns today are found in a few commodity names, so I’m going to give you a few stock ideas, and let you decide what to do with them.
First is Massey Energy (MEE), one of the most institutional-quality coal stocks. The stock formed a bottom around 10 for months, and then exploded from 12 to 22 in just four days; all four produced huge volume, with two of the days producing more than triple-average volume. The stock has now consolidated for the better part of six weeks, and the next big move is likely up. It shouldn’t drop below 21 if all is well.
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowAnother coal stock to watch is James River Coal (JRCC). The pattern is similar–a large bottoming process, and then an earnings-induced surge at the start of May. JRCC jumped from 14 to 18 on the day of its earnings, with volume nearly six times average! It has consolidated between 20 and 25 since; MEE is slightly stronger, but odds favor JRCC making a good run if (when?) it gets decisively above 25. Support is around 20.
Intrepid Potash (IPI) makes (you guessed it) potash, a key ingredient in fertilizer. The stock soared from 20 to 34 in four weeks, all of them on above-average volume. In fact, during that run, there were four separate days when volume was more than double average; somebody was buying! Now IPI has moved sideways on its chart for 15 trading days on light volume. This one could take a bit longer to catch its breath, but we think any strong move above 34 is buyable; support is in the 29-30 range.