As part of our series of annual forecasts, especially our 2020 forecasts, we cover a forecast about the top steel stocks. This article is not meant to pick out top steel stocks. However, it is meant to forecast in which direction top steel stocks will move in 2020. According to our top steel stocks forecast for 2020 we believe the first part of the year will be great. We see an upside potential of 25% in that time period.
Our top steel stocks forecast for 2020 is based on the monthly chart of the top steel stocks ETF (SLX) as well as one of the leading indicators for the commodities space (AUDUSD).
Top steel stocks forecast: our leading indicator breaks out at the start of 2020
Let’s start with our traditional approach: checking the long term trend of our leading indicator.
For simplicity we look only at one leading indicator: the Australian Dollar against the US Dollar. In short the AUDUSD currency pair.
Why is this currency pair important for our top steel stocks forecast for 2020? Because it shows the big picture trends for the commodities space.
You don’t want to be invested in steel or any other base metal if commodities leading indicators are bearish.
The AUDUSD has two very clear messages:
- The line in the sand for commodities is .80 on its chart. This is indicated with this horizontal line (our annotation). It indicates the level where commodities turn bullish (once broken to the upside). Alternatively a move from current levels in that direction will help commodities tremendously in the short to medium term.
- The bearish trend that started early 2018 is about to end now. It may even have ended last week. This is what we indicated with the yellow circle. It is the start of a reversal, but one (if it holds) with major consequences on the commodities space as it might confirm that Commodities Start Turning Bullish In 2020.
If we had to pick out one, and just one, leading indicator for commodities as well as for steel, we go for the AUDUSD chart pattern.
Top steel stocks forecast: SLX sector breakout
The SLX ETF is the best proxy to work with, representing the steel stocks sector.
We look at the monthly SLX chart to uncover monthly trends. Big picture trends is what we are interested in, the rest is mostly noise (or meant to time perfect entry and exit points).
The monthly SLX chart has one clear message: it is attempting to break out of its 20 month downtrend. Make no mistake, a bear market of almost 2 years is something powerful. Turning such a bear market into a bull market requires a lot of energy.
Now that’s *exactly* why we seek confirmation of leading indicators. We want to have confirmations outside of the sector that such a U-turn is taking place.
The AUDUSD confirms the message from below chart, and vice versa.Top #steel #stocks look bullish with an upside potential of 25% in the first half of 2020. All conditions are right! Entering will be easy, but a perfect exit will be crucial for success. $SLX Click To Tweet
This means we have green light to look at specific entry and exit points, as well as how exactly to play this potential new bullish trend.
The above chart tells us a few things:
- The line in the sand for SLX ETF is 37 points. That’s where the horizontal line (annotated) comes in. This is the breakout point from 2016, the breakout point as we head into 2020, but also support in 2013/2015.
- We see both a horizontal and vertical breakout happening right now.
- The strong bearish trend that started in 2011 may be ending now.
We cannot be more exact than this in the public domain. However, we can be more specific in our premium services. If you want to play this trend with InvestingHaven’s research team then subscribe to our free newsletter and get alerted on when/how we want to play this sector.
Steel stocks forecast: first price target 25% upside potential
In general we believe that a first upside target of 25% is in the cards. We believe this first target will be met in the first part of 2020.
What happens afterwards remains to be seen. We may see a continuation of the bullish trend, or a stabilization. We may also see a (temporary) bearish trend.
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