Building a Steel Base or Scrap Metal Heap
- Posted by Greg Harmon
- on April 18th, 2011
Steel stocks have been attracting some attention lately as they are approaching their 200 day Simple Moving Averages (SMA’s). As a group they had a good run higher from December into January and have been trading in a broad range since, trending lower since February. But the last two weeks have highlighted some differences in the most popular trading names, AKSteel (ticker:$AKS), USX (ticker:$X) and Mechel Steel (ticker:$MTL) and has traders scratching their heads about whether a base is being built to move higher or if the next leg down is about to happen. Let’s take a look.
AKS is the strongest of the three. After moving higher into year end it has put in a series of three higher lows, all near the 100 day SMA. The past week it has been in a bear flag and if it breaks that flag lower then there is downside opportunity to the 200 day SMA at 14.51 and support at 14 before lower at 13. If it bases and breaks the flag higher above the 100 day SMA then there is resistance at the 50 day SMA and 16.80-17 before higher at 19. The Relative Strength Index (RSI) is hovering around the mid line and the Moving Average Convergence Divergence (MACD) indicator is flat, both offering no insight as to the next move. Wow, and that is the strong chart!
X broke below support at 51.8 last week and found support at the 200 day SMA. Monday it looked like that support was lost as it fell below, but it recovered and finished back above the 200 day SMA printing a hollow red candle, an indication of bullish intraday activity. The RSI has flattened as it approaches the technically oversold level and the MACD is starting to improve. Perhaps this has found a bottom and is ready to rise. Until it gets over 51.80 though it is in no man’s land. Beyond that there is resistance at the 50/100 SMA cross near 55.55 and 58 on the way to retesting the highs. A close below the 200 day SMA is bearish with a short target of 48.10 followed by 46 and 42.
MTL is the worst chart of the three and got kicked in the nuts and bolts Monday. After the recent base over the 38.2% retracement of the move higher from July if fell through losing more than 8% at one point and finding support at the 50% retracement. It printed a Hammer, possible reversal candle, on heavy relative volume and closed back over the 200 day SMA. If the Hammer is confirmed by a move back above 28.03 then there is resistance at 29 and the area of the 50/100 day SMA cross at 30, before it can see 32. It is outside of the lower Bollinger band so sideways consolidation or a move higher are likely. But failure to retake the Fibonacci will find support at the 200 day and the 50% Fibonacci level before testing 25 lower. The RSI is sloping down and the MACD is increasing negative showing favor to more downside.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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