Checking the Coal Bucket

The strength today has been absolutely amazing. I didn't expect us to march right back up to basically where we were yesterday. I watched the action early and said to a few fellow traders that this morning looked like the opposite of what we saw yesterday afternoon. Watch us just march right up all day. I said it, but I didn't actually believe it. If I had, I would have been buying hand over fist this morning. I wasn't.

So we are heading back to new highs, from what I see in the media and on Twitter right now. However, this type of volatility, when the S&P 500 futures move 25 or 30 handles on reversals from top to bottom or bottom to top, is now generally something we see when the market is strong and headed toward new highs. Usually this type of volatility is associated with a topping pattern. So I'm not ready to jump back in with two feet.
 
When I am ready to jump back in, I have to think the really beaten-down names, such as those in the coal sector, will get lots of attention. Cliffs Natural Resources (CLF) has blasted higher, apparently heading for $19.25 from here. I hate chasing Cliffs on days when it is up 7 or 8%. The move just hasn't been rewarding, as the stock has quickly faded. That being said, Cliffs is finally showing signs of a bottom. It looks like $17 is the line in the sand. Cliffs is setting up as a risk-reversal type of play where I would look to sell July or September $17 or $17.5 puts and buy some at-the-money or out-of-the-money call spreads using the premium from the put sale....99 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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