The Technical View: US Steel Shows Strength of Steel
Finding a bottom in a stock is every investor’s dream but at the same time a rare event. This is because bottoming formations take months or even years to develop but once they happen they can lead to great returns.
Bottoming is a process and it comes in different forms and shapes with the rarest one being the rounding bottom or “saucer”, as its shape resembles one. The saucer is characterized by a steady flattening of the downtrend to such a degree that the price at one moment enters a sideways range, but then starts to rise slowly and finally accelerates upward on high volume. We believe that this is what is currently happening to US Steel (ticker X). The monthly chart below shows the rounding bottom reversal pattern developing over the last 3 years.
Zooming closer into the chart and by using a weekly chart we can see that US Steel broke above long-term resistance levels accompanied by an acceleration in price. Over the last 3 years momentum (as measured by our momentum oscillator MACD) was slowly gaining ground where it finally broke above the zero line (in early 2014) indicating for the first time in a long time, positive momentum.
The recent strength of US Steel is also reflected in our Relative Strength chart below, which compares the stock with the S&P 500. A rising ratio indicates that US Steel is outperforming (up more, down less) the S&P 500. The recent completion of the rounding bottom formation is also reflected in the relative price below, a sign that further outperformance lies ahead.
Finding a bottom is not an easy task but not impossible either. Remember that you’re not trying to “bottom pick” a stock. In other words, you’re not trying to buy at the absolute lowest price and hold on, as shares move higher (which is a recipe for losses). Instead, you want to buy after the stock bottoms and then hold on as shares move higher.
Costas Pierides CFTe, MSTA
Market Technician
[hr]
DISCLAIMER:
All information contained herein and any opinions expressed in it are intended solely for the use of customers of Elgin AMC (“Elgin”). This document is not, and should not be construed as an offer or solicitation to buy or sell any product, security or any other financial instrument. Any opinions expressed in this document are subject to change in that notice. This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and CySEC’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research. This document is not based upon detailed analysis by Elgin of any, market, issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of your own commercial judgment. This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. Elgin does not make any guarantee, representation or warranty, (either expressly or impliedly), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon informational sources believed to be reliable and prepared in good faith. Elgin does not make any representation or warranty, express or implied, as to the accuracy, completeness or correctness of this information. Elgin does not accept any liability for any loss or damage, howsoever caused, arising from any errors, omissions or reliance on any information or views contained in this document. The value of any securities mentioned in this document may move up or down, and the value of securities denominated in other currencies will also be subject to fluctuations in the relevant exchange rates. Securities issued in emerging markets are typically subject to greater volatility and risk of loss. Elgin’s officers, directors and employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time, add to or dispose of any such investment(s). This information is the intellectual property of Elgin. Redistribution or dissemination of this document is prohibited.
Elgin AMC is a trading name of Numisma Capital Ltd. Numisma Capital Ltd is regulated by the Cyprus Securities and Exchange Commission (CIF licence no. 122/10) Additional information from Elgin AMC is available upon request at info@elgingamc.com