Industrial metals and other infrastructure plays have been crushed in recent weeks, in a painful unwinding of the Trump reflation trade.
Overly high expectations have clashed with the sober reality of a dysfunctional Congress and massive opposition to the new president, which has delayed legislation to fund a historic rebuilding of American roads, bridges, and tunnels.
Commodity-driven declines tend to last longer and drop further than logical or technical targets, and it’s been no different this time around, with copper, steel and iron plays cutting through major support levels while testing the patience of committed shareholders. Even so, it looks like the selloff is finally coming to an end, set to offer pullback profits to well-timed positions.
United States Steel, Corp. (X) looks like a no-brainer in this regard, after posting a 2-year high at $41.83 in February and turning sharply lower into the second quarter. A 13-point decline has now reached major support at the 200-day EMA, which should offer a platform for a bounce that recovers at least 50% of the downswing. As a result, it makes sense to consider share purchases to take advantage of the expected reversal.
X Long-Term Chart (1993–2017)
The stock topped out at $46 in 1993 following a multi-year uptrend and entered a long-term decline that continued into the 2003 low at $9.61. The subsequent uptrend transformed the steelmaker from laggard into market leader, lifting more 185-points into the June 2008 all-time high at $196.00. It plunged with world markets during the economic collapse, giving up nearly 100-points in just nine months into the March 2009 low at $16.66.
A bounce into 2010 came up short, retracing less than 30% of the bear market decline, with the price then easing into a consolidation pattern that stair stepped to lower ground in 2011 and again in 2015. The stock settled at an all-time low in February 2016, ahead of a yearlong bounce that stalled in February 2017 within 5-points of the 2014 high at $46.55. So far at least, it’s failed to end the string of lower highs in place since 2008 (red line).
X Short-Term Chart (2015–2017)
The multi-wave decline into 2016 ended with a 3-month basing pattern that yielded a small scale breakout when the stock rallied above $9.70 in March. The uptick mounted the 200-day EMA and stalled at 20 six weeks later, giving way to a 7-month test at long-term support. Price ejected off that level after the presidential election, reaching a 2-year high at the end of November.
It peaked at $39.14 in December, pulled back into early February and took off in a fresh advance that stalled at a multiyear high about three weeks later. Aggressive sellers then took control, carving a small scale Elliott 5-wave decline that reached the 200-day EMA earlier this week. Given the importance of the moving average last year, we can now assume it will offer strong support, ahead of a sizable recovery rally.
X 60-Minute Chart (January-April 2017)
The 60-minute view highlights the Elliott 5-wave structure, with a vertical decline into this week’s low at $28.42. A reversal hasn’t been confirmed, but a Fibonacci grid ending at the current low suggests the decline is nearing its end, with highs and lows aligned perfectly across harmonic levels. The blue line marking the December high offers a logical upside target, but long positions should utilize trailing stops to lock in intermediate profits.
The Bottom Line
U.S. Steel has reached long-term support that should trigger a reversal and oversold bounce recouping at least half of the two-month decline. Aggressive risk management will be needed to profit from this trade setup because there are no guarantees the stock will resume its former uptrend.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.