The stock price of U.S. Steel Group, symbol X, has corrected from close to $50 at the start of 2018 to $35 at the time of writing. Is this 30 pct correction sufficient to buy the stock of U.S. Steel group?
This is the type of question that requires the ‘start with the chart’ approach as an answer. That’s not to be confused with technical analysis though, we only look at price action and long term patterns in order to find the dominant trend(s). That is the right approach, in our view, as it shows the market’s preference over time. It would not make sense to start with a fundamental analysis or go through recent news of this company.
Moreover, the timeframe must be long term, preferably the monthly chart.
As shown below on the monthly chart over 20 years the price of U.S. Steel Group is now trading right at support (purple rising line). Note the overhead resistance around $46, and how resistance and support form some sort of triangle. As this stock trades right at support of this triangle it might be a buy opportunity, but there is a substantial risk as well: if support gives away there will be plenty of downside.
Is there a way to forecast the future price of X based on the current course of things in other markets? Here it becomes tricky because most other markets that show intermarket effects with steel stocks are also at important decision levels:
- The U.S. dollar arrived at overhead resistance.
- The commodities sector did not break out, it is still going sideways.
- The inflation expectations are at resistance, did not break out yet.
So there is only one thing investors can do at this point in time, says InvestingHaven’s research time, wait and see:
“If there are too many unknowns, or if markets are near key resistance or support levels, it is better to give the market time to decide as opposed to trying to outsmart the market”.
Fundamentally, there is nothing wrong with U.S. Steel Group. The stock has a healthy P/E ratio of 12x, steady revenue and earnings, an acceptable short float ratio of 5 pct.
In other words, this is not yet a time to make a buy decision on the stock of U.S. Steel Group. It is a time to follow this stock closely, and decide once there is a clear direction. The trend will suggest whether it is a good idea to buy the stock of U.S. Steel Group.
Note on the long term chart that a rounding bottom could be in the making, one that started in 2013 and bottomed in January 2016.