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September 27, 2012 / redman59

Looking at the Steel Industry

This morning one industry that may be catching some action is steel.  This can be associated to news that we received out of China that their biggest steelmaker is cutting production (article here).  While this would be considered a negative for the steel industry, what’s interesting and noted by @OptionsHawk is that when the Natural Gas Producers cut back on production it in turn stabilized the sector.  The steel sector has definitely been a laggard and is currently down -9.23% year to date according to the Morningstar Steel & Iron Industry metric (MG131).  So if looking to go long some stocks in steel I have broken down the industry based on fundamental and technical strength, data derived from the PPT.

Based on fundamental strength the following are the 5 of 27 strongest stocks:

  • VALE
  • CLF
  • HAYN
  • TS
  • CRS

Based on technical strength the following are the 5 of 27 strongest stocks:

  • GGB
  • WOR
  • TS
  • SIM
  • NWPX

On another technical note the following are trading above their 50 EMA with the 50 EMA above the 200 EMA:

  • CRS
  • TS
  • SIM
  • WOR
  • GGB

The complete list of stocks are uploaded to FINVIZ, sorted by performance year-to-date.

Also @ZorTrades came out with a blog post titled “Possible Long Idea In The Steel Sector“.  In this post he highlights the stock $MTL.  What also got my attention here was the fact that on 9/25 there was a 5000 block of the Nov 7 puts sold to open at 0.50.  So this trader is willing to be long stock with a cost basis of 6.50.  Looking at the chart I have to agree with @ZorTrades and that this looks like a good trade on a risk to reward basis.  Also I like seeing big put sales like this in stocks within the same industry as it is a sign that the institutions are willing to get long at those cost basis levels.  This can be seen as a sign of marking a bottom area in a stock or industry that has been hit.

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