The Stock: InMet Mining Corp.
Recent price: $54.15
Trend: The retreat in mining stocks has released some tension between bullish and bearish sentiment for the commodity reflation trade. The market's drop has turned many large cap mining stocks Stock Trends Weak Bullish - an indicator that tells us that the stock's share price has dipped below the 13-week moving average trend line. Although this trend weakening should alert shareholders to send a serious glance toward the exit, the market correction will also bring some investors back to these fizzling stocks.
The S&P/TSX Global Mining Index is 19 per cent off its mid-January high and is below its 13-week moving average trend line for the first time since it turned Stock Trends Bullish last spring. Many of the leading stocks in the group have deflated quickly, but the trend conditions may still support exposure to the sector.
The Trade: After slipping to its 40-week moving average trend line, shares of InMet Mining Corp. invite bullish investors to buy amid the market volatility. Heavy selling in the past two weeks has taken its toll as the share price dropped from $78 to $54. Certainly, the decisive drop below the $63 support level remarks fully about the correction experienced by the stock - and the sector. The 20-per-cent share price drop from its January high is on par with the nasty shaving other big cap mining stocks suffered. Adding interest to this big cap mining stock, though, is the immediate support of the 40-week moving average at $54. Long-term shareholders have an opportunity to make a stand here.
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The Upside: This trade assumes a bullish stand by the mining sector, which is far from assured. However, this is a tradable opportunity for the optimist. A rebound off support, if generated, may deliver only a moderate recovery of lost ground. A move back to $70, a level that represents a possible trading range ceiling, would be a short-term objective. The commodity trade's long-term advance will dictate whether the stock regains its January $78 high, but this trade is more about the technical setup for an immediate rebound to a Stock Trends Bullish category and a price above trend at $63. More sophisticated investors would use stock options to navigate this trade.
The Downside: Unlike many of the stocks profiled in this column as a buy opportunity, InMet Mining's downside relief, if the 40-week moving average proves to be a phantom plank of support, is not clearly placed. The trade is based on support of the 40-week moving average trend line, so any significant move below $54 signals an exit.