Is “X” a Viable Long Position

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United States Steel Corporation (X), a BUY?

Summary

  • U.S. Steels share price is driving all-time lows.
  • Analyst expectations for price direction are mixed.
  • Will there be an increase in steel demand?
  • Who’s holding positions for/against U.S. Steel?
  • What do technicals have to tell us?
  • Conclusion

Per Reuters: United States Steel Corporation (U. S. Steel), incorporated on May 25, 2001, is a steel producer. The Company is engaged in producing flat-rolled and tubular products with production operations in North America and Europe. The Company operates through three segments: Flat-rolled Products (Flat-rolled), U. S. Steel Europe (USSE) and Tubular Products (Tubular). The results of the Company’s railroad and real estate businesses are combined under the Other Businesses category.

Price at all-time lows

At the time of this writing US Steel is trading below $11.00 per share.  With a 52 week high of $44.87 per share and an all-time high of $186.93 one might suspect this price to be a good opportunity for a long position.  To continue the point, this price is over 5 points lower than the lowest dips of the great recession of 2008-2009.

Analyst expectations

If you look to the recommendations of analyst you’ll find them mixed.  Essentially it’s a “hold” position and one might want to wait for consensus on direction.  At that point, you may be too late to gain the appreciating value in the stock.  With that said, all are calling for a price target far above current X’s current trading price.

Steel demand

I think it’s important to note the commodities boom that occurred in the first decade of this century.  The development of BRIC countries is acknowledged for the primary cause of this rise.  Further, they were driving such a demand for natural resources that concerns arose for the long term supply.  Before this boom there was a depression in commodities for years.  These last two facts also contributed to the rise in price.

What is the status of economic and structural development in the world?  Short of a magnitude of research to prove otherwise, it appears that the global economic direction is flat to down.  This year alone has given us concerns in Greece, Europe, South America, and most importantly China.  Without proper demand or financial liquidity is there anything to argue a rise in steel demand and subsequently share price of the stock in question?  I’ll admit that I’m dodging this question.  I currently don’t have anything steel… I mean concrete to confidently predict demand.  (I apologize for the dad joke…)

Community sentiment

So, where does the broader community stand?  I have utilized open interest (OI) of option contracts  to determine sentiment for AA, RUT, and other equities.  Frankly the AA speculation didn’t pan out well.  On the other hand, the RUT OI work has been very promising.  Open interest values for contract expirations from now until early 2018 are charted below.  It’s easier to view with the CALLs and PUTs separated out.  The orange bar is giving a graphical representation of price in relation to the contracts strikes.  The vast majority of CALL strikes are above current prices.  PUTs are quite spread out.  However, do note the massive difference in the amount of PUT open interest at the strikes of 8 and 10.  What does it mean?  It can mean a lot of things.  The individuals or institutions holding these positions could be considering hedges of stock positions held.  They could be buying these positions with hopes for profits from falling prices.  They could be selling these positions with hopes for profits from rising prices.  This may be a prime entry point in taking a stock position.  With all that in mind, OI does seem to provide support at one to two dollars below the current trading price.

X - CALLS

X - PUTS

What do the technicals have to tell us?

It’s not surprising to see that the price is riding the price channels lower band.  The yearly value of the MACD is below the signal line and below zero.  This is a bearish signal.  The RSI is also bearish at 22.5.  The ten year values are also bearish.  Particularly the ten year RSI value of 30.88 is the lowest seen across this time frame.

X - 1 Year Chart

X – 1 Year Chart

X - 10 Year Chart

X – 10 Year Chart

Conclusion

With the considerations taken above, it appears that there is an opportunity in U.S. Steel (X).  There may be more downside risk to the stock.  How much is there to be gained?  Analyst targets are in a range from ~$20-$40 per share.  Time of course is the primary concern here.  If you were buying silver stocks in 2011, you’ve hated those positions for the past four years.  If you’re willing to wait it out, and it might not take that long, X truly does seem to be oversold and priming itself as a long position for those who have the cash and patience to execute.


Disclaimer: The information presented does not consider your personal investment objectives and should not be taken as a recommendation. Further, it shall not be construed as an offer to sell or a solicitation to buy any security mentioned. The risk of loss in any stock, option, or futures trade can be substantial. Consider all relevant risk factors before trading.

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