April 26th, 2009

Steel Industry Leaders: MT, TS, AKS, NUE, SID, MTL

Every weekend, I plug the IBD Industry Rankings into my tracking spreadsheet to see which Industry Groups seem to be moving up in rank and, thereby, gaining some relative momentum. What caught my eye this week was the Steel Producers Group comprised mostly non-US manufacturers. [Full disclosure: I have a large commitment in AKS, AK Steel, a U.S. group member.]

Here’s a chart of the Industry Group’s ranking since 2005:

The chart’s shaded area represents the Bear Market which I consider having ended on March 9. The blue line is the Group’s actual ranking; the red is a 20-week moving average. The blue has now firmly crossed its 20-week MA.

A look at the group members’ charts shows why members in this group appear primed to again move into market leadership positions. Nearly every one of the stock has formed one reversal pattern or another and therefore qualifies to be among those I put in my watchlist of potential breakouts. Most formed channels (could also be considered Double Bottoms) like:

  • MT (Arcelor Mittal)
  • TS (Tenaris)
  • AKS (AK Steel)

Some formed triangles:

  • NUE (Nucor)
  • SID (Comp. Sideurgica Nacional

MTL (Mechel) even formed a near perfect inverse head-and-shoulder bottom:

Other members with great charts include: PKX, AP, SIM, CPSL, GGB and STLD.

Have I made my point? These charts aren’t just a stock chartists dream, they represent something at work that’s fundamental and common to all these stocks. It doesn’t matter what the specific chart pattern is for an individual stock, big money investors are regain confidence in the industry, absorbing whatever supply there might be and are causing these stocks to turn.

For those with short memories who can’t remember further back than the Financial Crises Bear Market, let me remind you that these stocks were leaders from 2003 to mid-2008. The group consists of 16 companies, many of which appreciated from 5- to over 10-fold during those five years. Since their 2008 peaks, most have declined more than 70-80% over the past 12 months.

There’s no quaranty they’ll be able to quickly recoup those losses and again move to new all-time high territory but if the world economy begins to rev up again, especially in those BRIC countries (there’s a term we haven’t mentioned recently), then these will soon be big movers again.

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