Another 20% UPSIDE trade.. CENX

 

This looks like a potential bullish trade. The stock bounced off the lower trend line and there is an 80% chance that it will touch $13.

Buy at $11.20

TP at $13, $13.50

CENX technical analysis

CENX has multiple bottoms, and multiple tops. Yesterday, the stock managed to break through a rather strong resistance point that has been created by the many tops earlier. However, it has not fully broken through the top.

My take is that the stock will experience another minor short threatening as BEARS still believe that aluminum price cannot rise too high.

Aluminum price is currently at 91cts/lb. See the link above (Aluminum stuff).

So for daring shorters, you can place a short position at above $11. For Longs, place a long position below $10.2

Disclosure: no position

Initiating Coverage on CENTURY ALUMINUM COMPANY. $CENX. Buy at lower levels.

Timing Is Key

Century Aluminum Company is in the highly volatile aluminum sector. Valuation is closely related to the price of the metal itself. While aluminum demand in the future would increase the cost of the metal, in the short run, the price of the metal is still unstable at $0.82

This stock is very attractive at $8 and $9. A safe play on CENX is to allow it to dip to $9 or $8 and wait for an reversal upwards, buy it when it returns to $10 and heads upwards.

China Demand and Supply

The aluminum price is controlled by China which consumes half of the world’s supply. Recently, the Shanghai index has been falling as investors are concerned about the slower growth prospect of China and lower demand for the metal than initially thought.

China has been quick to increase their capacity which is now higher than pre-crisis level. The recent slump in Aluminum price has caused a few chinese smelters to stop production as the price is lower than the production cost.

This reduced supply would help support Aluminum prices at $0.80. However, given the current climate, it is possible that Aluminum price dip slightly below $0.80 to $0.77. Every cent means a lot to Aluminum producers.

Euro stabilization

While the EURO has enjoyed a strong rally recently due to several good economic indicators results, there is no certainty that this rally would continue next week. It is possible that the recent rally is mostly attributed to short covering by speculators who are looking for a higher entry.

The EURO may face another series of short speculation in the next few weeks, pressuring it to $1.16.

This is bad for Century Aluminum Company, as aluminum price will be severely affected.

Aluminum price vs Oil price

Aluminum is not quick to catch up with the increase in oil price. The movement of Oil price has been very volatile lately. Recently, oil price has soared to $77 while Aluminum price is still at depressed levels of $0.85 instead of $1.

DOW is near resistance

The market is facing another resistance. Given this climate, it is difficult to break this resistance. It is probable that the market will retrace this recent rally to the 61.8% fib level.

Sentiment

I am bullish on the aluminum sector. However, the current price is still above fair valuation. Buy Century Aluminum Company at $9 and $8.

Competitors

Alcoa is also another good play. I will be buying Alcoa too at $10.5

Disclosure: no positions yet.