Monday, September 10, 2012

Chart of the Day - Eastman Chemical (EMN)

The "Chart of the Day" is Eastman Chemical (EMN), which showed up on Thursday's Barchart "All-Time High" list. Eastman on Thursday posted a new all-time high of $56.70 and closed +2.94%. TrendSpotter has been long since July 3 at $50.89. In recent news on the stock, Eastman on July 30 reported Q2 EPS of $1.40 versus the consensus of $1.30. Wells Fargo on Aug 1 reiterated its Outperform rating on Eastman and said the company's valuation will increase. Lazard on July 25 initiated coverage on Eastman with a Buy and a target of $67. Eastman Chemical, with a market cap of $8 billion, is a global chemical company with a broad portfolio of chemical, plastic, and fiber products.


Record Corn Imports by China to Drive Rally, Rabobank Says

from, Bloomberg:

The biggest-ever imports of corn by China, the world’s largest livestock producer, may help sustain a record rally in Chicago that’s been driven by drought across the U.S. Midwest, according to Rabobank International.

Shipments may climb to 7 million metric tons in the year starting Oct. 1 from about 5 million tons this year, Daron Hoffman, Shanghai-based director of research, said in an interview. That compares with a U.S. Department of Agriculture forecast for a 60 percent drop to 2 million tons in 2012-2013.

Record imports by China may spur higher prices, lifting global food costs and forcing rival importers to cut purchases. China’s demand needs to be met by imports no matter what the price, according to Nathan Broders, director of feed ingredients at INTL FCStone Inc. Corn has rallied 24 percent to a record this year as the worst U.S. drought since 1936 slashed output.

Prices may be much higher in the second half of 2012 as China increases purchases, Hoffman said yesterday, without giving a forecast. His estimate for imports in 2012-2013 is higher than the USDA’s outlook because he sees a smaller increase in China’s output this year, he said in Shanghai.

Read More @ Bloomberg

Commitments of Traders Reports : Dan Norcini

Following are some charts detailing the positioning of the hedge funds in both the silver and in the gold markets.

Note the build in the longs and the reduction in the shorts as those funds who gambled on a breakdown in the price of the metals and sold them down near their support levels, were caught flat-footed and forced to cover.

The first chart is that of Silver:

The following chart is of Gold. Note that since May of this year, when gold was trading below the $1550 level, and when hedge fund short positions were at a maximum, those hedge funds playing gold from the short anticipating a breakdown in the price, were forced out and have been covering ever since. Meanwhile, new longs are coming into the market in a big way putting further pressure on the short camp.

Stock Most Consider 'Damaged Goods' Could Make You 20%-Plus

Bank of America (NYSE: BAC) was once one of the proudest American banks. Acquisition after successful acquisition led to soaring profits and a skyrocketing share price. For a long period in late 2007 and early 2008, the shares comfortably coasted above the $40 mark.

Then came the financial crisis of 2008 and Bank of America was at the eye of the hurricane. Its shotgun wedding with Merrill Lynch and previous acquisition of Countrywide Financial put it at the epicenter of the U.S. housing crisis. The shares lost more than 90% of their value, finally bottoming at $4.90 in December 2011.

That's why many investors still think of the stock as "damaged goods." But even in its shrunken state, Bank of America is still a financial behemoth.

Fundamentally, the approximately 30 analysts who cover the stock project that a strong earnings turnaround is in progress. Revenues are expected to stay essentially flat at $90.57 million in 2012 and $91.98 million in 2013. However, 2012 earnings are expected to be $0.55 per share, compared to $0.01 the prior year. By 2013, they are projected to grow 65.4% to $0.91, providing a tailwind for a rising share price.

Below is a daily chart that emphasizes the nearly five-month-long basing pattern the stock has been forming.

The first thing to note is the rising bottoms that characterize the stock. The shares hit $6.70 in late May, retested this level at $6.84 in early June, and on another retest probed $6.89 at the end of July.

Since that time, the bank has been on a tear. It tested the late April $8.38 resistance level in mid-August, failed and backed off to $7.82, but is once again probing the $8.40 level.

The technical pattern is a bullish ascending triangle. The uptrend line drawn from the late July $6.89 low currently passes through the chart at about $7.90. The height of the base is approximately $1.70 ($8.40 -$6.70). That means if BAC does break out of the pattern, according to the measuring principle, it should have a target of just over $10 ($8.40 + $1.70 = $10.10).

Trade Setup

I'm doing things a little different this week. I don't plan to only trade shares of BAC. For the first time in Trade of the Week, I'll be using a two-step trading strategy designed to lower risk... a covered call trade that offers 21% upside potential.

My plan is to add BAC at the market open on Monday and write one May 2013 $10 strike for every 100 shares added.

For example, BAC closed on Friday at $8.80. For every 100 shares added to the portfolio, I would write one May 2013 $10 strike call, which last traded at $0.63 on Friday. Since each call is the equivalent of 100 shares, I'd receive $63 in options premium.

The $0.63 options premium means the trade will be in the red if shares fall to $8.17 or below ($8.80 - $ 0.63 = $8.17). If this were to happen, then the stock would break both its trendline off the late July $6.89 low, as well as fall below the $7.82 pullback it underwent in late August -- there would be little technical justification to continue holding the stock.

I am setting my stop-loss at $7.79, just below the $7.82 reaction low. If the stop-loss is hit, I would buy back the call to close the option position at a minimal loss.

If the shares continue to rise, two scenarios could play out:

1. BAC hits $10 before the third Friday in May and the shares are called away. In that case, my profit is 21% ($10.00 -8.80 = $1.20 profit + $0.63 option premium = $1.83 and $1.83/$8.80 x 100 = 21%).

2. BAC trades consistently below $10 until the third Friday in May, and the calls expire worthless. That trade would have generated a $0.63 premium, which at current prices is just under 7% of the stock price. If the stock has continued its uptrend, the price appreciation will be on top of that.

ArcelorMittal (NYSE: MT)

ArcelorMittal, together with its subsidiaries, operates as an integrated steel and mining company worldwide. Its steel products include flat products, such as slabs; finished flat products, which include plates, hot- and cold-rolled coils and sheets, hot-dipped and electro-galvanized coils and sheets, and tinplate and color coated coils and sheets; semi-finished long products comprising blooms and billets; finished long products, including bars, wire-rods, structural sections, rails, sheet piles, and wire-products; and seamless and welded pipes and tubes. The company offers its steel products for steel-consuming industries, such as automotive, distribution and processing, appliance, engineering, pipes and tubes, packaging, construction, energy, and machinery industries. It is also involved in mining iron ore and coal deposits. The company's principal mining products include iron ore lump, fines, concentrate, pellets, and sinter feed; and coking, PCI, and thermal coal. It has coalmines located in Kazakhstan, Russia, the United States, and India; and iron ore mines in Algeria, Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine, the United States, Canada, Mauritania, and India.

To review Arcelor's stock, please take a look at the 1-year chart of MT (ArcelorMittal) below with my added notations:

1-year chart of MT (ArcelorMittal)

As you can see from the chart, MT has been trading within a narrow, sideways Rectangle for the last (4) months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. What's great about a Rectangle pattern is that it not only provides you with trading points of support & resistance, but it also gives clearly defined breakout & breakdown points. For MT, the Rectangle pattern formed a $16 resistance (red) and a $14 support (navy).

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for MT is $2 high ($16 - $14), MT should climb to a minimum of $18 ($16 + $2) if it breaks above $16 or fall to $12 ($14 - $2) if the stock breaks below the $14 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: MT has formed a very common chart pattern know as a Rectangle. The possible long positions on MT would be either on a pullback to $14, or on a breakout above $16. The short opportunities would be at either $16 or on a breakdown below $14.

US Weekly Economic Calendar

time (et) report period Actual forecast previous
3 pm Consumer credit July -- $6.5 bln
7:30 am NFIB small business index Aug. -- 91.2
8:30 am Trade deficit July -$43.5 bln -$42.9 bln
10 am Job openings Aug. -- 3.8 mln
8:30 am Import price index Aug. -- -0.6%
10 am Wholesale inventories July -0.2%
8:30 am Weekly jobless claims 9-8 370,000 365,000
8:30 am Producer price index Aug. 1.5% 0.3%
8:30 am Core PPI Aug. 0.2% 0.4%
12:30 pm FOMC statement
2 pm Federal budget Aug. -- $134 bln
2:15 pm Bernanke press conference
8:30 am Retail sales Aug.
0.8% 0.8%
8:30 am Retail sales ex-autos Aug. 0.8% 0.8%
8:30 am Consumer price index Aug. 0.6% 0.0%
8:30 am Core CPI Aug. 0.2% 0.1%
9:15 am Industrial production Aug. -0.2% 0.6%
9:55 am UMich consumer sentiment index Sept. 75.0 74.3
10 am Inventories July -- 0.1%