Time To Run From Steel

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 |  Includes: AKS, X
by: Adam Alvarez

If you bought shares of AK Steel (NYSE:AKS) under $5.25 or shares of U.S. Steel (NYSE:X) under $18.50, the time to take profits has probably arrived. Your gains may not be sizable or significant, but they are gains nonetheless. Gains which, considering the sad state of the steel sector overall, can easily be lost.

Both stocks have alarming similarities which became the reason for their recent success as well as the reason for their potentially troubling near term future. Both rebounded from lows not seen in years which led their apparent oversold state to attract a multitude of buy orders. However, both still proved unable to break recent resistance.

For AK Steel, even the possibility of the company posting a 1600% increase in earnings next year isn't enough to make the shares a sure winner. With markets showing immense volatility, expect these shares to be at the forefront of the wild price swings. Of course, they could easily be on the downward slope if there 30% year-to-date contraction is any indication.

Also, with the over 10% run shares enjoyed Wednesday, there was still one major and foreseeable disappointment. That being the stock's failure to break $6 a share. For nearly a month shares toyed with that level before finally succumbing in the middle of June. The most negative sign of all was that this breaking of support occurred while the markets were rallying from their earlier lows touched in the first week of the month. With resistance sitting directly above shares now, expect any further upward movement to be short lived and taken advantage of by day traders.

As for U.S. Steel, the situation may prove even more dangerous for shareholders. The last time shares meandered in such a rage was in 2009 when the company responded by slashing their annual dividend from $1.20 to $0.20. Although further dividend cuts may prove unlikely, it's no secret the company is going to have to look more after its own bottom line than shareholders.

Also, be prepared for news surrounding the company to be that of caution, at best. Deutsche Bank (NYSE:DB) already lowered their price target on shares to $37 from $40 this week, but that should prove mediocre to the kind of ratings the company may receive in the coming months as world economies suffer further slowdowns. With shares already teetering, expect any significant downgrades to move shares down to levels not seen since 2003. With that said and shares stuck between their March 2009 low of $16.66 and $20, it might be wise to get out now while shares hover near the high end of the range.

For those interested in going long with either of these stocks, it would prove wise to wait until after the summer selloff or when markets begin to stabilize to take up a position. If you have shares in the stocks but are not positive, stop loss orders of $4.50 on AK Steel and $16.00 on U.S. Steel would be appropriate.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.