Cooling U.S. Steel Stock, SLX Approach Critical Levels

U.S. Steel and SLX have cooled off amid concerns that President Trump's infrastructure agenda will fail

Mar 29, 2017 at 12:34 PM
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Steel stocks have been sliding recently on worries over President Donald Trump's ability to deliver on campaign promises. Shares of United States Steel Corporation (NYSE:X) have been hit hard, as has the VanEck Vectors Steel ETF (SLX). Below, we'll take a closer look at X stock and the exchange-traded fund (ETF), including the key Fibonacci retracement levels the shares are flirting with.

U.S. Steel Stock Struggling to Get Back on Track

In late February, X stock hit a two-year high of $41.83. Since then, the shares have been in free-fall, last seen 1.4% lower at $32.73. In fact, U.S. Steel stock has underperformed the broader S&P 500 Index (SPX) by 15 percentage points over the past 20 sessions.

Are things about to turn around? Not necessarily, based on the chart below. As you can see, X shares could struggle to take back the $33.50 area, which represents a 23.6% Fibonacci retracement of their early 2016 to early 2017 rally. In addition, $33.01 represents X's year-to-date breakeven level, and $33-$34 is roughly twice the stock's lows from 2009 and 2013.

us steel stock chart fibonacci retracement

If United States Steel Corporation shares can't overcome the aforementioned resistance levels, they'll be vulnerable to an unwinding of optimism on Wall Street. Seven of 12 analysts rate U.S. Steel stock a "strong buy," leaving room for downgrades. Plus, X's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio is 1.37 -- just 8 percentage points from a 12-month peak.

Whether bullish or bearish, U.S. Steel's short-term options traders can score bargain bets at the moment. X stock sports a Schaeffer's Volatility Index (SVI) of 30%, which ranks below 94% of comparable readings taken in the past year. In simpler terms, the options market is currently pricing in relatively muted volatility expectations.

SLX Options Perfect for Bargain Hunters

SLX is in a similar position, cooling off since its two-year highs north of $45 to trade at $40.50. However, unlike X stock, these shares actually bounced off the $38 area -- a 23.6% Fibonacci retracement of their January 2016 to February 2017 hot streak, in which they roughly tripled in value. Further, $37.79 is SLX's year-to-date breakeven marker, which hasn't been breached at all in 2017, and the $38-$39 region not only provided support for the ETF for most of 2011-2013, but represents roughly twice SLX's 2008 lows.

slx stock chart etf fibonacci retracement

Those looking to purchase premium on short-term SLX options are in luck. The ETF's SVI of 30% sits below 94% of all comparable readings taken in the last 12 months. In other words, short-term SLX options are affordably priced right now, from a historical volatility perspective.

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