US Steel Corp (NYSE: X) appeared on my bearish scan the other evening thanks to a bearish crossover of the daily stochastic readings. The stock has been in a downward trend since the beginning of the year with a trendline connecting the highs and that trendline is currently at the $27 level. Over the last six months, the stochastic readings have hit overbought territory four times and each time they crossed over the stock has dropped considerably.
Each of the previous four instances where the stock rolled over after hitting overbought levels resulted in a decline of 14% or more. However, that might not be the case this time as the weekly chart shows a trendline of its own that should act as support for US Steel Corp stock on any pullback. The weekly trendline is currently at the $23.30 level which is only 9.2% below the current price. The 52-week moving average is between the current price and the trendline and it has acted as support in recent weeks.
The other factor that makes me think the weekly trendline will win out over the previous pattern is the sentiment toward US Steel Corp stock. The short-interest ratio is currently at 7.8 and has been on the rise since the beginning of February. The analyst ratings toward the stock are less than enthusiastic as well. There are seven “buy” ratings, seven “holds” and five “sells”.
The company had recorded losses for three consecutive quarters and finally turned it around in the most recent earnings report by reporting earnings of $0.34 per share. Unfortunately the company is expected to lose money again in the current quarter, but they are expected to make money for the year.
Essentially I have two different outlooks for US Steel Group stock. Over the coming days I look for the stock to fall as I suspect the overall market to fall right along with it. The overbought status, the trendline and the pattern are pretty compelling. Over the long run, I am bullish on the stock as I think the extremely bearish sentiment and the long-term trendline will win out. The company seems to have things turned around and headed in the right direction again.
So if you are a short-term trader looking for a quick 8-9% gain, I certainly wouldn’t have a problem shorting the stock. If you are a long-term investor, I would look to buy the stock down under the $24 level. I can see it getting back up to the $31 level with ease and then it will have to deal with some resistance.
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