U.S. Steel Added to Goldman's Conviction Buy List

Fresh off my recent post on steel, on Monday, Goldman Sachs (GS) came out and added U.S. Steel (X) to its Conviction Buy List, boosting its price target to $228, up from $210, noting that higher steel prices should obviously benefit them. The stock was up 3% or so yesterday at $190, breaking out to new highs.

This could very well be the catalyst needed to really propel the steel names into another gear, or, it could be the near-term top - just kidding. The action in steel has been puzzling the past few days. I had started a position in Siderurgica (SID) because I wanted more steel exposure, but was quickly stopped a day later as it broke through the 50-day moving average. I am now playing X as its chart is holding up quite nicely and is the stereotypical momentum trade setup.

Again, I'm not trying to trade steel, I want to own some of these companies. But, at the same time, the market is shoddy at best and the technicals are not all that great. So, I've got to pick my spots. X, Mechel (MTL), and SID are all steel plays worth monitoring. I'd rather be in the emerging market steel names, but the charts are telling me to play X at the moment. And, this is exactly why incorporating technical analysis into your investment style is beneficial.

click to enlarge

So, yesterday, on the Goldman Conviction Buy List add, I got into X with a protective stop just under $185. That was the overhead resistance that had been causing X problems and so if it breaks back down below that, it's heading lower. Again, I want to highlight that you have to treat this as a momentum trade because that's what it is and that's why it’s breaking out. I want exposure to steel as an investment, but most of the charts suck right now, except for X.

Therefore, in the meantime, I'll play X as my steel play until the other stocks in the sector start to show signs of life. This type of market is all about adaptability - playing what's working and shorting what's not.

Disclosure:  The author owns X.

Comments

[francis schutte]

I just decided to sell my US-steel position. The reasoning behind is given on my web page.

[marketfolly]

please note I was stopped out rather quickly on this play, right under the recent resistance area of $185 (as I mentioned in the article). This was a breakout play that failed to breakout.

The massive sell-off in steel we saw recently is the perfect example for why you want to have stop orders in place.