With the rally looking set to continue, I am watching the steel sector for good plays.
My favorite steel company is X as steel demand and pricing seem to be favorable in the next few quarters.
PKX is a good asia play, it has lots of investment in emerging markets like India, Indonesia.
STLD is a scrap steel play.
Expect a 20% appreciation of stock prices in the steel sector.
Catalyst:
Obama’s high speed rail
China’s continued growth
Declining Iron Ore prices
As iron ore prices skyrocket, AKS will experience severe shrinking margins. United States Steel is in better hands but will face weakness as well.
As the housing market continues to be weak, construction spending will not increase significantly.
Steel prices face high resistance as buyers are not willing to buy at a higher price with the current economy.
For the short term, Steel stocks are a sell, while iron ore stocks are a buy. (to hedge risk).
Double tops are forming for both AKS and X, and technical traders will target this formation to short these stocks.
If you are interested in a short, time it with the market correction. The DOW is still facing buying pressure as retail continue to flock into stocks.
AK Steel has been sold off by investors who cannot stand the idea that AK Steel is going to lose money as Iron Ore price advances.
However, AK Steel may be able to raise prices again should Iron Ore price indeed rise more than 30%.
I think the current sell off is overdone, and I am playing AK Steel for a rebound.
My target is $22.
Today, I have observed some buying pressure on AK Steel, there is demand at $18.6 level, that’s where I have bought AKS.
Should be an easy $22 and maybe higher in 2 months.
This is in line with a rebound in the Steel sector
