This Cliffs Natural Resources Stock Signal Hasn't Been Wrong in Years

Cliffs Natural Resources shares could benefit from upgrades and short covering

Alex Eppstein
Apr 10, 2017 at 3:09 PM
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Cliffs Natural Resources Inc (NYSE:CLF) is getting hit hard today, but if past is precedent, the mining stock could be getting ready to bounce. At last check, the shares were testing their 160-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, previous tests of this trendline have predicted upside breakouts 100% of the time.

Diving right in, in three previous signals in as many years, CLF stock has posted positive returns in the ensuing week and month. Specifically, the shares have averaged a post-signal five-session gain of 6.3%, while 21 days out, the typical advance is 66.9%! Prior to the most recent trendline test, the moving average served as a springboard in the weeks leading up to the presidential election:

cliffs natural resources stock today with 160 day trendline

If CLF stock again takes a bounce off the aforementioned trendline, plenty of pessimists could be forced to unwind their positions. Most notably, 18.5% of the equity's float is sold short, hinting at short-squeeze potential. Cliffs shares could also benefit from analyst upgrades, considering 71% of covering brokerage firms maintain lukewarm "hold" assessments. This, toward a stock that's up 123.5% year-over-year at $7.89, despite being down 2.7% this afternoon.

It seems bullish options traders are flexing their muscles this afternoon. About 25,000 CLF calls are on the tape, versus 10,000 puts. Plus, buy-to-open activity is detected at the out-of-the-money weekly 4/13 8-strike and April 8.50 calls. In other words, options traders anticipate the stock will topple the strikes by the respective expiration dates, at the close this Friday and next.

It happens to be an excellent time to purchase premium on short-term Cliffs Natural Resources options, as well. The stock's Schaeffer's Volatility Index (SVI) of 54% rests below 98% of all readings from the past year, hinting at muted volatility expectations. Not to mention, CLF's Schaeffer's Volatility Scorecard (SVS) is at 100, suggesting the shares have made larger moves than the options market has priced in over the last 12 months.

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