SLX

[AussieTrader]

Profile:
The Steel ETF seeks to replicate as closely as possible, before fees and expenses, the total return performance of the Amex Steel Index. The Steel ETF seeks to replicate as closely as possible, before fees and expenses, the total return performance of the Amex Steel Index. The Index provides targeted exposure to companies worldwide that are engaged in the steel industry. As such, the Fund is subject to the risks of investing in this sector.

Trading Idea:

In the current market there some significant hot sectors and some significant cold sectors. Steel falls right into the hot sector list. Globally, iron ore pricing has been rising significantly. Steel makers are agreeing to increases for 2008 from iron ore producers that are 100% higher than previous contract pricing. Rio Tinto (one of the largest global suppliers forged this type of deal with China's largest steel producer BaoSteel just this week). That increase being larger than any previous increase negotiated since China started its huge resources consumption growth. Further those new contract prices will form the benchmark for all ore consumers, that is everyone will have to pay up.

Based on this continued growth, I wanted more exposure to this sector and I think the best way is via an ETF.

Technical Analysis:

SLX is trading inside an ascending triangle having peaked at $114 and pulled back into strong support above $100. The pattern suggests continuation of the ascending direction as the most likely scenario. With close support and continued growth prospects in the steel sector we have a nice risk to reward set up.

We will introduce a stop at the next update.

Fundamentals:

Information on MarketVectors ETFs can be found at this link:

http://www.vaneck.com/index.cfm?cat=1000&cgroup=ETF&LN=3&rfl=/etf&setGUID=done

Specific detail on SLX here:

http://www.vaneck.com/index.cfm?cat=3192&tkr=SLX&LN=3-02

Trading Plan:

Buy SLX at or around the open

[AussieTrader]

Update:

Even the 'Man of Steel' could do nothing about yesterdays selling. SLX reflected the general market action, our entry pretty much was the high zone of the day. SLX closed just about on the 50EMA which should offer decent support.

One of the premises of this trade was a good risk / reward ratio, the chart set up looked technically great enabling a close stop in the early phase of the trade. We will introduce that stop today, placing just below the June 12th swing low, about 1 * ATR (ATR (20) being $3.10) away from the current price. Obviously we weren't expecting day 1 of the trade to be so weak, my initial plan was to put the stop at the level mentioned above and I will keep that plan.

Trading Plan:

HOLD SLX with STop at $99.40

[AussieTrader]

Update:

Basic Materials - Iron and Steel sector shed 2% yesterday as most stocks in that sector were under selling pressure. There is no fundamental news change that caused the selloff.

SLX gapped down from the open, undercut the June 12th swing low, but eventually closed above that point. However it did close below the 50EMA which has me concerened.

We have quite a tight stop on this play as the premise was a breakout from descending resistance with close proximity of support.

Lets see what today brings, the reasoning for the position is still valid, so the trade plan will remain the same.

Trading Plan:

HOLD SLX with Stop at $99.40

[AussieTrader]

Stopped out of SLX at $99.40