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Taking A Gamble On The Brazilian Steel Industry

By Jim MakosStock MarketsOct 29, 2012 02:34AM ET
www.investing.com/analysis/taking-a-gamble-on-the-brazilian-steel-industry-141492
Taking A Gamble On The Brazilian Steel Industry
By Jim Makos   |  Oct 29, 2012 02:34AM ET
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It seems that I invested in the Brazilian steel industry yesterday when I bought Gerdau SA (GGB) stock. Since my swing trading is greatly based on technical analysis and support and resistance levels, I wasn’t aware that I was buying shares of Gerdau SA, a Brazilian-based company engaged in manufacture and sale of steel products.

That didn’t change my trade’s perspective, as I am predicting a swing up to the most recent resistance level in the daily chart for the time being.

ggb-daily-stock-chart
ggb-daily-stock-chart

Some traders will correctly point out that the trend line was broken a week ago. That is a sign that the uptrend might slow down or even come to a halt. Yet, that is not a reversal sign, although a breakout to lower prices will be and that is why I have set my stop loss at $8.50, having bought 200 shares for 9 dollars each. So, is that the only reason to trade GGB stock upwards?

No, the weekly and monthly GGB stock charts also favor long positions according to my analysis

ggb-monthly-stock-chart
ggb-monthly-stock-chart

Notice the ascending triangle in the weekly chart? How about the stock healing its wounds of the 2008 plunge? Now, I can’t really predict if the GGB stock price will climb up to the all-time high of $26 or even retest the resistance level at $18. If it does, my investment will benefit greatly. However, I’ll be a happy swing trader if Gerdau shares gain 2 dollars over the next couple of months, testing for the third time the resistance level at $11. I have already placed my first profit target there, so that I trade out 70% of my position. I will let about 50 shares gain whatever the market offers in the future for my trade.

What happens in case my prediction is wrong? Lose about $100 or 2% of my trading capital and move on to trading other stocks. I only need to be correct in one out of 4 predictions of this kind, in order to breakeven, given the $2 profit per share I’m aiming in this particular trade.

Disclosure: I’m long GGB.
Taking A Gamble On The Brazilian Steel Industry
 

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Taking A Gamble On The Brazilian Steel Industry

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