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The steel sector has been a pocket of amazing strength lately, yet remains greatly under-loved by investors. In 2005, the PHLX SIG Steel Producers Index (STQ) rallied 12 percent, while the S&P 500 Index (SPX) struggled to climb just three percent during the same time period. What's more, the STQ has soared nearly 26 percent since the start of 2006. In fact, the sector has outstripped the SPX on a weekly basis since October 2003.



 MONTHLY CHART OF STQ SINCE JUNE 2003



 MONTHLY RELATIVE STRENGTH, STQ VS. SPX, SINCE JUNE 2003

Moving in for a closer look, the STQ has climbed along the steadfast support of its ascending 10-week and 20-week moving averages since July 2005.



 WEEKLY CHART OF STQ SINCE JANUARY 2005 WITH 10-WEEK AND 20-WEEK MOVING AVERAGES

Some of the group's strength has been spurred by rumors of potential acquisitions and consolidation attempts within the sector. At the start of the month, AK Steel (AKS: View sentiment for AKSsentiment, chart, options) soared sharply higher on speculation that United States Steel (X: View sentiment for Xsentiment, chart, options) would make a bid for the firm. If the deal were completed, it would create the sixth-largest steel producer. However, both companies declined to comment on the rumors. Meanwhile, Netherlands-based Mittal Steel (MT: View sentiment for MTsentiment, chart, options)

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