Pessimism Runs Rampant as Mining Stocks Collapse

Cliffs Natural Resources Inc (NYSE:CLF) and United States Steel Corporation (NYSE:X) are struggling, along with the broader mining sector

by Alex Eppstein

Published on Sep 14, 2015 at 2:43 PM
Updated on Jun 24, 2020 at 10:16 AM

Mining stocks are among the worst performers this afternoon, on what has been a dreary day overall. Among the 30 exchange-traded funds (ETFs) we follow, the one struggling the most is the iShares Dow Jones U.S. Basic Materials ETF (NYSEARCA:IYM), down 1.4%. Getting more specific, Cliffs Natural Resources Inc (NYSE:CLF) and United States Steel Corporation (NYSE:X) are two metal stocks taking it on the chin, as cooling industrial data out of China raises questions about demand.

CLF has plunged nearly 12% this afternoon to trade at $3.23 -- landing it on the short-sale restricted (SSR) list for a second straight session -- and almost 55% year-to-date. In other words, the equity has resumed its longer-term downtrend, following an August breakout. Ushering the shares lower for well over a year has been their 20-week moving average.

This bleak technical set-up has caught the attention of bearish bettors. A mind-bending 47.6% of CLF's float has been sold short, or roughly 12 days' worth of trading activity, at average daily volumes. What's more, 11 of 13 analysts consider the stock a "hold" or worse.

Option traders have also taken notice, with puts changing hands at nearly triple the expected intraday rate today. In fact, based on current open interest configurations, plenty of bears are eyeing a move south of $3 for Cliffs Natural Resources Inc. Nearly 4,900 contracts reside at the out-of-the-money September 3 put, and data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates several hundred positions were bought to open over the last two months.

Another huge loser today is X, off 4.5% at $13.46, and earlier tagging a 12-year low of $13.38. Exacerbating selling pressure was a dismal outlook from fellow steel name Timkensteel Corp (NYSE:TMST). So far in 2015, the security has surrendered half of its value, and has underperformed the broader S&P 500 Index (SPX) by close to 35 percentage points during the prior three months.

Option bears have descended on the chronic underperformer, too. X's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.40 ranks above 84% of comparable readings from the past 12 months. In today's trading, buy-to-open activity is detected at the September 12.50 and 13 puts, as well as the October 12 put. They aren't alone in expressing doubt toward United States Steel Corporation, either. A lofty 38.5% of the stock's float is sold short, which would take over four days to cover, at typical volumes.

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