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 FOMC 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, Nucor ( NUE - Get Report) and U.S. Steel ( X), 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.
|June 7 Price||Rating||(-UV) / OV%||Fair Value||MOM||5-Week MMA||Value Levels||Pivots||Risky Levels|
|Compania de Minas Buenaventura||$27.51||S BUY||-21.20%||$34.93||DM||$27.13||22.27 Q / 20.96 A||26.03 A||29.89 S / 30.29 M|
|Harmony Gold||$13.53||HOLD||2.20%||$13.24||DM||$14.69||9.87 A||17.89 A / 18.32 S|
|Freeport-McMoRan||$51.25||S BUY||-29.60%||$72.80||DM||$57.76||44.58 Q / 41.64 A||50.57 S||57.20 S|
|Phelps Dodge||$78.82||BUY||3.80%||$75.93||DM||$84.40||69.09 Q||95.39 M|
|Nucor||$47.92||HOLD||15.40%||$41.53||DM||$52.67||41.53 Q||54.24 M|
|US Steel||$60.51||HOLD||37.50%||$44.08||DM||$65.56||53.34 Q||62.19 M||68.36 M|
|Key: OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot. |
Source: Global Market Consultants
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