Steel stocks have certainly tested investors ‘ courage in 2020, with the cyclical industry trading down about 30% year-on-year, compared to a 6% decline of the S&P 500 index amid expected strong pandemic induced by the global recession. However, the steel group has exceeded that of the overall market of approximately 20% over the past three months as the hope of the growing government infrastructure stimulus spending will be at the base of the steel demand.
In March, President Donald Trump has called for a $ 2 trillion infrastructure package to help revive the economy. Although Congress has not agreed to such a measure of support, the president and the speaker of the House Nancy Pelosi recently expressed their interest in increasing investment in infrastructure. In addition, China is on track to increase its budget deficit target to 3% this year, to boost infrastructure spending.
Below, we take a more detailed look at the three indicators of the steel stocks that are sitting well placed to capitalize on the increased infrastructure spending before turning to the cards to identify the different levels of trading using technical analysis.
The United States Steel Corporation (X)
With a market capitalization of $1.57 billion, the United States Steel Corporation (X) produces and sells steel products in North America and Europe. Earlier this month, GLJ Research upgraded shares based on expectations of the government, infrastructure spending, a continuation of the quantitative easing (QE) to infinity from the Federal Reserve, and a rebound in U.S. automobile production. On the liquidity front, of Pittsburgh, the company ended the first quarter with cash and cash equivalents of $1.35 billion – an increase of 144% year over year, placing it in a position to maintain strategic flexibility, as the global economy recovers. On June 15, 2020, the united States Steel offers a 1.2% dividend yield and has added 18.64% in the past month.
The steelmaker’s share price has broken above an ascending triangle and the 200-day simple moving average (SMA) at the beginning of June, before resuming back to the breakout point from last week. Swing traders who buy the decline of this important support zone should watch for a move up to about $14.25, where the action may meet selling pressure at the vicinity of the main December 2019 swing high. Exit the trade with a small loss if the price fails to hold above the June 11 low at $8.31.
Nucor Corporation (NUE)
Steel products maker Nucor Corporation (NUE), said during its first quarter, earnings call that it expects market conditions to bottom in the second quarter, and sees a return to profitability in the back half of the year. Although the firm’s cash position has decreased by 20% since last year, it was declared a reserve of 1.25-billion dollars – a good amount to overcome short-term uncertainty. Nucor stock has returned 5.61% during the last month and 31% over the past three months, as of June 15, 2020. Investors also receive a healthy 4.06% dividend yield.
Since plumbing its March lows, the stock trended steadily higher before finding a wall of resistance at the 200-day SMA earlier this month. The current dip offer a buying opportunity at$ 40, where the price met a confluence of support from several month uptrend line and 50-day SMA. Those who take a position here should consider booking profits on a test of the 52-week high of $57.58, while protecting the downside with a stop-loss order placed under the May 22, low $38.98.
Steel Dynamics, Inc. (STLD)
Steel Dynamics, Inc. (STLD) operates as a steel producer and metal recycler in the united States. Although the company has experienced a strong decline in the first quarter, orders for steel from the automotive and energy sectors, he recalled that the sector in the longer term, the fundamentals remain in place. The cash has increased by 28% to $ 1.24 billion in the quarter to March, giving the company ample balance sheet liquidity to fund future projects. Trading at $26.42 with a market value of $5.56 billion and the issuance of a 3.91% dividend yield, the stock has added 42.32% in the last three months, outperforming the steel industry by an average of nearly 14% as of June 15, 2020.
The buyers defended the $26 level last week, where the shares to find a floor of support from a horizontal trendline that connects a set of prices of the share during the last year. Those who decide to buy the stock at current levels should place a stop-loss order below the 50-days SMA and the target of the crucial overhead resistance at the $34.50. Protect the trading capital by the collection of the judgment at the point of death if the price closes above the from June to $29.98.