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Contrarian Alert: Is It Time to Buy Cliffs Natural Resources?


Hints of global growth should drive this stock higher as increased steel production requires iron ore, which is Cliffs Natural Resources' staple.

The party continues on Wall Street. Investors remain bullish on stocks judging by the sheer price action as both the S&P 500 (INDEXSP:.INX) and Dow Jones Industrial Average (INDEXDJ:.DJI) managed to close out last week well above their all-time highs. The economic data front is sending hints of a potential downturn as manufacturing indicators remain weak; nonetheless, this has failed to put a noticeable dent in the bulls' armor of confidence as markets shrugged off last week's worse-than-expected industrial production data.

Not every stock is surging to record highs. In fact, one particular large-cap miner offers a risky, but compelling, opportunity for investors still looking to get a piece of the action on Wall Street. Contrarian investors should add Cliffs Natural Resources (NYSE:CLF) to their watchlist because this former S&P 500 sweetheart is resting on major historical support, thereby offering a great entry point for those with a bullish outlook for the steel industry and the global economic recovery as a whole.

Chart Analysis

Consider CLF's 10-year weekly performance chart below. This stock has endured a downtrend since peaking in mid-2011 and it has failed to take part in the 2013 bull run seen across Wall Street. What's noteworthy is the fact that CLF is trading and holding right at a major support level (red line), which it previously rebounded off in mid-2009; after this, it posted a monstrous gain when it surged to over $100 per share in just two years. CLF has also seen above average buying volumes swoop in at these low levels over the past few weeks, perhaps suggesting that institutional buyers are loading up on this bargain miner.

Click to enlarge

Consider CLF's year-to-date daily performance chart below. Notice the big volumes on March 27, 2013. What's even more encouraging is that CLF has manage to hold above $18 per share while slowly climbing higher along a rising support level (blue line). Another encouraging sign is the above average buying volumes see on April 25, which further adds weight to the bullish argument at hand.

Click to enlarge

Investors looking to jump in long should be mindful of the overarching risks plaguing this stock; fundamentally, iron ore mining has seen very sluggish growth due to the stagnant global recovery, while technically, CLF is still stuck in a long-term downtrend.


Hints of global growth should drive this stock higher as increased steel production requires iron ore, which is CLF's staple. In terms of upside, the next resistance level for this stock comes in at around $25 per share. On the other hand, a broad market correction can easily sink it back below $20 per share, while a break below $17 per share will likely welcome serious selling pressures. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Editor's note: This article by Stoyan Bojinov was originally published on Commodity HQ.
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