(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
While the stock market was oversold, I focused on accumulating beaten-down, commodity-related stocks as part of my “commodities crash” playbook as explained in “Profiting from Physical Assets in a Resource-Constrained World – Rules and Picks.” The swoon in August produced many commodity stocks that erased their post-QE2 gains; I used such milestones to trigger purchases. On rallies, I have chosen to lock in a few profits given the recent sell-off in commodity stocks did not represent the kind of wholesale crash that I was expecting…. {snip}… The most recent earnings report from Joy Global (JOYG) on August 31 confirms that what just happened to commodity stocks did not coincide with a significant slowdown in China nor did it represent a crash. JOYG is even bullish for 2012.
Here are two key sections from the earnings report…
{snip}
Taken together, JOYG remains bullish overall for 2012…
{snip}
These descriptions are good reasons for continuing to hold some amount of commodity stocks, but they also reveal the material vulnerability to the bullish case.
{snip}
On the other hand, if China manages to navigate these risks over the coming months, I will increasingly have to assume the window for the commodity crash has indeed passed.
{snip}
Post-earnings trading in JOYG reveals the ambivalence in the market. The stock rocketed as much as 7% right into stiff resistance at the 50-day moving average (DMA) and 200DMA, but closed with a mere 1% gain. JOYG closed the entire post-earnings gap up at its lowest point in the day.
*Chart created using TeleChart
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: no positions