December 17th, 2010

Steels: Your Second Chance

I last commented on the steel producers on April 26, 2009 and wrote:

“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.”

That should be grade a pretty good call since many of those stocks did move up nicely until the market started stalling out. By the way, the foreign steel producers continued to move higher.

But the group has been fighting against some pretty strong economic and political headwinds in the form of a slow economy here and abroad (with the exception of the emerging economies), weak dollar and European debt crisis. But those winds seem to be calming and even perhaps changing direction such that we may soon see the wind at the market’s back. And just as the economy is showing signs of slow recovery, the Steel Industry Group against looks to be perking up, the last of the commodity group to show some signs of life and potential for price appreciation.

Many of the stocks in the group look like they are about to cross above the highs set soon after that April posting; on a long-term basis, many look like they’ll attempt to move into new high territory (a horizontal line on each graph at April 24, 2009 marks the previous post so you can see the subsequent move each stock made; click on image to enlarge):

  • SCHN
  • STLD
  • AKS
  • MTL
  • GGB

I could have added several more stocks but sufficient for you to get the picture.

The market accounts for 50% of a stock’s move and industry group for another 30%. The steels are one of those groups where the stocks of industry members move pretty much in lockstep. With a strong market anticipated for 2011 and the group being one of those (along with financials mentioned earlier) that is beginning to move out of a multi-year long consolidation, it may be time to start nibbling at these stocks.

I’ve shared with my subscribers the steel stocks I selected to add to my portfolio.

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