This column was originally published on RealMoney on June 8 at 2:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Commodities snapped after the
raised the fed funds rate to 5% on May 10, with speculators around the world fearing further rate hikes. The bubbles have popped for gold, copper and steel, and the share prices for metals miners have been hit even harder than the commodities themselves.
This illustrates the risk I have discussed in my columns covering miners and steel makers, as this sector has been the most overvalued among the 11 I follow. You may have left some money on the table if you followed my suggestions to sell, but now we see how hard it is to follow the crowd out the door on that painful right side of a parabolic peak, as stocks become falling knives.
Comex gold reached a high of $732 on May 12, just two days after the FOMC hiked the funds rate. Wednesday it hit a low of $621.30; a close Friday below the five-week modified moving average of $644.20 will shift the weekly chart profile to negative, indicating risk to my semiannual support at $551. If it somehow rallies to end the week above $644, the rebound should be limited to my monthly resistance level of $676.60.
Nymex crude has been moving sideways to down since reaching $75.35 on April 21; a close Friday below the five-week MMA of $70.28 would shift the weekly chart profile to negative, indicating risk to my semiannual support of $64.58.
The Federal Reserve is concerned about energy-induced inflationary pressures. If crude oil is trading toward this support, the FOMC should make a last-minute decision to pause at its June 28-29 meeting. This would stabilize commodities and steel and mining stocks.
Valuations among miners and steel makers have fallen sharply since I last wrote about them May 5, but the sector is still the most overvalued at 8.8%, with precious-metals miners 21.2% overvalued, base-metals miners 7.2% overvalued and steel makers 30.2% overvalued.
Despite the decline, the fair values of all the stocks listed below have increased due to solid earnings and raised EPS estimates from Wall Street.
The supermen of steel,
, have hit kryptonite -- they're down more than 20% from their early May peaks. Investors should add to positions in these companies on weakness to my quarterly value levels listed in the table below and reduce holdings on strength to my monthly risky levels.
has the most improved profile among these stocks -- it has been upgraded to a strong buy by ValuEngine and has gone from 7.5% overvalued to 29.6% undervalued due to the decline in its share price and a $10 rise in its fair value. Investors should add to positions on weakness to my quarterly value level of $44.58 on the 85% chance that shares will rebound to my semiannual pivot of $50.57. Reduce holdings on strength to my semiannual risky level of $57.20.
The copper stocks are down over 25% since May 11.
( PD) has been upgraded to a buy by ValuEngine. Add to positions on weakness to my quarterly value level of $69.09 and reduce holdings on strength to my monthly risky level of $95.39.
Add to holdings in
Compania de Minas Buenaventura
on weakness to my annual pivot of $26.03 and my quarterly value level of $22.27. Reduce holdings on strength to my semiannual risky level at $29.89.
Investors should continue to add to positions in
on weakness to the 200-week SMA, now at $12.68, and reduce holdings on strength to my annual risky level of $17.89.
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Richard Suttmeier is president of Global Market Consultants, Ltd., and chief market strategist for Joseph Stevens & co., a full service brokerage firm located in lower Manhattan. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University.