This is probably one of the least surprising things I could say this week, but I am shorting Southern Peru Copper Corporation (PCU). Copper was one of the most talked about stories this week. It had its first down month in a year, and it’s crashing hard. It’s gone down a little too far too fast in the short term, but I hold everything for 3 months, so I’m really not too worried that the RSI looks overextended at 23.05. So if you’re a short-term trader, I’d wait until the RSI backs up over 30 before getting in.I like PCU because if you look at the monthly chart, it’s broken a trendline that is over a year old. In fact, it’s sliced through it and then some. I also like the fact that it sliced through its 200-day moving average on the daily chart. There seems to be a supoprt point at about $24.75, but if you look to the left of the weekly chart at the amount of volume that exists at that price level, there’s not much there. Therefore, I think this will be a short-term stopping point. Another thing I like is that the RSI on the weekly chart experienced divergence from the price before the stock broke down. Look at how the stock makes it to $35.26, but the RSI fails to make a new high along with the price.
The weekly stochastics are entering oversold territory on the weekly chart, but they have to enter the oversold territory at least twice and then diverge before I start to really take them seriously. The more you look at this one, it has everything going for it. Look at the price relative to the Wilshire 5,000 and the Chaikin money flow and how they both diverge the price as well.
I think this one has quite a bit to fall, and I’m buying the Jan 21 2012 25 Put (YPV) because I want to know how much I have at stake (where I don’t when I’m short the shares) and I don't want to suffer sever deterioration in time value as I wait my standard 3 months.
