Top Advisors Corner

Scott Carney: Steel is the Real Deal


With the recent news about tariffs on imports, US steel stocks may benefit over the long run. Currently, the news situation has a market catalyst to send US steelmakers there. Companies such as X and AKS have stabilized over the past year and exhibited signs of structural recovery. Although I focus less attention on news items and analyze harmonic M and W-type price patterns to define opportunities, the recent surge of price action has triggered key levels that indicate there is more to the story than a single headline.

US Steel (X): Weekly
Failed Bearish Bat

The following charts show an interesting long-term and short-term situation that is breaking out above important structural zones. Most notably, the weekly chart shows the recent reaction from a Bearish Bat pattern that defined the $40 level as critical resistance nearly a year ago. The market spent most of 2017 recovering from the initial pullback from the completion of the pattern. This structural formation that commenced in late 2014 represents an important inflection point that has now been violated.

US Steel (X): Monthly
Failed Bearish Bat

With the recent rally, the harmonic pattern zone of resistance has officially been breached, triggering a larger formation on the weekly chart. Although this situation will require time to unfold, the longer-term recovery for US Steel (X) has now been triggered and projects a 1.618 extension on the monthly chart where the stock is now projected to complete a larger Deep Crab pattern at the $70 level.

AK Steel (AKS): Daily
Bullish Harmonic Patterns

Another possible candidate to benefit from this change is AK Steel (AKS).  In this instance, the stock has formed consecutive harmonic patterns over the past year to establish important support just under $5. Last November, the daily chart formed an ideal Crab pattern that marked an important low. After a sharp reaction during 2017, the price action formed a Bullish Bat pattern that has retested prior low confirming support.

Major headline events such as these can help to draw attention to a situation that may otherwise be overlooked. Steel stocks have suffered for years and they have a long way to go to recover close to the 2008 pre-financial crisis levels.  At a minimum, there are opportunities here to take advantage of this break out. It does appear to be for real. This is a slow-moving sector so this will require a longer-term time horizon. However, the recent upside progress has triggered an acceleration in the long-term recovery of US steel stocks like these.  Although AKS is more speculative, they both have plenty of room to run on a continued move above current levels.

Great Harmonic Trading to You, 

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