Short Term Play: Companhia Vale do Rio Doce (RIO)
August 17, 2008 – 3:58 pmI have a potential play that could be made Monday. The company is Companhia Vale do Rio Doce (RIO), a Brazilian mining company. Lets take a look at the charts:
In the graph below, we have a three year chart of Companhia Vale do Rio Doce. Notice the descending channel that forms and the stochastic oscillator registering the stock as oversold for close to two months now. I did not draw it on this chart, but we are seeing a megaphone top pattern here. Normally, I would see this as a opportunity to buy puts, but you will be my reasoning for now doing this later. Onto the next chart…
Here we have a one year chart of Companhia Vale do Rio Doce. Again, notice the descending channel and the support line which I have set at approximately $25.20. Onto the next chart…
Here, we have a 10 day chart of Companhia Vale do Rio Doce. Notice the doji candle that forms on the 8th with WAY lower than average volume, the inverted hammer candle that forms on the 12th and the crack of the support line this past Friday on lower then average volume. The %K line has also passed the %D line on the stochastics chart an divergence is growing and increasing. These are all strong bullish signals.
So what is our play here? Even though the chart is in a megaphone top pattern, I think purchasing calls would be a great play here. A lot of indicators point to this play: doji, inverted hammer, retest of the support line, rising stochastics and long term oversold stochastics. I would purchase this on monday barring a big drop. As long as the price says above our support line, buy calls and set a stop at $25.20. Which calls to purchase you might ask? I would stick with December 29’s or 30’s. Thanks for reading.
-Justin Moon, Senior writer for Marketchasers.com