three Charts That Counsel Metal Shares Will Wrestle


As the need for re-investment in U.S. infrastructure continues to rise, demand for North American steel and related building supplies can be expected move in step. While investors have witnessed a strong bounce in prices of key industrial metals off of the lows set in early June, nearby resistance levels are now suggesting that it could be time to proceed with caution.

SPDR S&P Metals and Mining ETF (XME)

Investors looking to take a strategic or tactical position in a targeted market segment such as metals and mining often turn to exchange-traded products such as the SPDR S&P Metals & Mining ETF (XME). Fundamentally, the fund comprises 27 holdings with a weighted market capitalization of $4.7 billion.

Taking a look at the chart below, you can see that the price has failed to move above the combined resistance of the 200-day moving average (red line) and a descending trendline. Active traders tend to favor these charts because the defined range establishes clear levels for placing buy and stop orders. If the weakness continues over the next couple of trading sessions, traders would expect the moving average convergence divergence (MACD) indicator to cross below its signal line, which in turn would likely trigger a sharp sell-off. Based on this chart pattern, traders will most likely hold a bearish outlook on the stock and set target prices near the swing low of $23.96.

Steel Dynamics, Inc. (STLD)

One of the top holdings of the XME ETF that traders will look to for clues on the direction of the overall trend of the sector is Steel Dynamics, Inc. (STLD). As you can see from the chart, the bears have clearly been in control of the momentum over the past year, and the trend doesn’t appear to changing quite yet. Active traders will most likely look to place their orders close to the trendline to maximize the risk-to-reward ratio. Target prices will most likely be set near the June low of $24.83.

Nucor Corporation (NUE)

Another major steel company and holding of the XME ETF that traders will look to in coming days is Nucor Corporation (NUE). Taking a look at the chart, you can see that the stock has traded in a predictable manner on each attempted break beyond the resistance of the 200-day moving average and dotted trendline. The strong levels of resistance suggest that the bears are in control of the momentum and that target prices will most likely be set near $46.79.

The Bottom Line

Steel companies have been under pressure for most of the past year. Despite recent talk of re-investing in U.S. infrastructure, stock prices are trading within defined downtrends and look poised to make moves back toward the lows notched in early June. Bullish traders will likely tread cautiously until the prices of key assets such as those mentioned above close above their respective levels of resistance.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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