ArcelorMittal options are attractively priced, to boot
Steel stocks have struggled this summer in the wake of President Donald Trump's imposed tariffs on steel and aluminum imports. However, steel names Cleveland-Cliffs Inc (NYSE:CLF) and ArcelorMittal SA (ADR) (NYSE:MT) could both be poised to snap out of their funk in the coming months if history is any guide.
CLF Stock Could Crack Double Digits Next Month
Cleveland-Cliffs stock is up 2.8% to trade at $8.70, after earlier today receiving a price-target hike to $11 from $9 at Credit Suisse. CLF has added 20% in 2018, but has recently consolidated just under the $9 region in the past two months.
CLF stock is now within one standard deviation of its 80-day moving average, after a lengthy stretch above this trendline. There have been four other times over the last three years where CLF has pulled back to its 80-day after trading above it for a significant length of time. Following those four prior signals, the stock went on to average a gain of 20% over the next month, and was higher 75% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar burst from current levels would put the stock into double-digit territory for the first time since March 2017.
A short squeeze could provide more tailwinds for the steel issue. Short interest has only gained 1% in the most recent reporting period, yet the 41.03 million shares sold short still represent 14% of CLF's total available float. At the security's average pace of trading, it would take nearly a week to buy back the bets.
Options buyers have handily favored calls in the past 10 days. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 12,884 calls in the last 10 sessions, compared to just 1,447 puts. The resultant call/put volume ratio of 8.90 ranks in the 95th percentile of its annual range, indicating a much healthier-than-usual appetite for long calls over puts during the past two weeks.
Multi-Year Highs Could Be On Horizon For MT Stock
Turning to ArcelorMittal, the Luxembourg-based steel name is up 2.3% to trade at $31.06 at last check. Although sporting a 21% year-over-year lead, MT has been stuck in a channel of lower lows and highs since flirting with its Jan. 27 three-year high of $37.50 back in May.
These lows culminated in a brush up against the shares' 320-day moving average. According to White, there have been two other times over the last three years where MT has pulled back to its 320-day after trading above it for a significant length of time. Following those two prior signals, the stock went on to average an impressive gain of 26.70% over the next month, and was higher 75% both times. A similar burst from current levels would vault the steel stock toward the $40 level for the first time since early 2014.
For ArcelorMittal, the attitude in the options pits is put-skewed. ISE/CBOE/PHLX data shows MT with a 10-day put/call volume ratio of 2.64, which ranks in the 87th percentile of its annual range. Should the equity climb higher, it could lead to an unwinding of these bearish bets.
What's more, now seems to be a great time to target short-term options on MT. This is according to its Schaeffer's Volatility Index (SVI) of 34%, which ranks in the 10th percentile of its annual range.