What's the Deal with Steel?

By Roger Baettig | March 07 2013 8:52 AM

Is steel a steal? If prices for the metal really are at a near-term bottom, then now might be a good time to consider adding some cold, hard steel to your portfolio. Longbow Research showed an interest in the sector on Wednesday and initiated coverage on four names in the steel space and upgraded another.

Reuters

A worker checks on coils of steel at a factory in Dalian, Liaoning province October 18, 2012.

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If you’re into that sort of thing, there are plenty of articles that will take you through the fundamentals. Basically, if you’re looking for companies with a lot of debt, less than impressive margins and P/E’s so high that you scratch your head and ask why, you’re in the right place.

But maybe these names look better from a technical perspective. Let’s see what the charts say about a few of the names that Longbow now has their eye on:

First up is Nucor (NYSE: NUE [FREE Stock Trend Analysis]). It’s one of Longbow’s favorites. They initiated coverage with a “Buy” rating.

At the beginning of December, Nucor started an impressive move to the upside—nearly 20 percent. This caused a break out through the upper trend line of the ascending channel only to sell off modestly soon after.

Then came a retest that formed a double top. The stock failed and sold off to the tune of 9 percent. The stock has since recovered, breaking through its 50 DMA on Wednesday. The stock looks ready to retest the $48.23 top.

How about Steel Dynamics (NASDAQ: STLD)? If you bought this name back in June when it underperformed the S&P by as much as 25 percent, you’re feeling good about your stock picking abilities right now.

It’s up 48 percent since its bottom and recently, a buying opportunity presented itself. Sell volume dried up causing the stock to shed 12 percent while still holding the lower trend line of the ascending channel. It’s currently testing the 20 DMA but the selloff might entice new buying interest if the broader market remains risk-off.

Finally, the name that gets the most press in the steel space, U.S. Steel (NYSE: X). If you’re a volatility trader, look no further. Wild price moves aside, the name has only barely formed an ascending channel over the past six months—a red flag in a market that won’t do anything but keep rising. After a large gap higher at the beginning of the year, the stock plunged, breaking through its lower trend line in February.

For now, this is a broken stock. U.S. Steel is below its 20, 50, and 200 moving averages and in a three month downtrend with sell volume showing no signs of drying up. Its next chance of gaining some momentum comes at the 200 DMA at $21.39 and then a test of the lower trend line right around $22.