A Quant Downgrade and Weak Recovery Signal Caution on Vale

Vale (VALE) was downgraded by theStreet.com's quantitative service today. Prices have stopped short of their February highs so it looks like the charts and the quantitative formulas may be in agreement.

Let's check the indicators and charts and try to come up with a good strategy.

In this daily bar chart of VALE, below, we can see that prices are above the rising 50-day and the rising 200-day moving average lines. It is a little rare that the two lines are on top of each other right now. What this does mean is that if VALE declines below $9 it will break both moving averages at the same time. The On-Balance-Volume (OBV) line rose with the price action from last August to February and then it has been neutral until firming some more the past two months. The daily momentum study shows equal highs in July and August as prices made higher highs. This is a bearish divergence -- not the strongest -- but a bearish setup never the less.

In this weekly bar chart of VALE, above, we can see that prices are just slightly above the rising 40-week moving average line. The weekly OBV line is positive and the weekly MACD oscillator recently crossed to the upside.

Bottom line -- VALE's weak recovery rally from its June low and today's quantitative downgrade makes me cautious of VALE and traders should raise their stop loss protection.

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(This column originally appeared at 3:54 p.m. ET today on Real Money, our premium site for active traders. Click here to get great columns like this from Bruce Kamich, Jim Cramer and other writers even earlier in the trading day.)

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