Q2 STOCKS TO BUY

Be Cautious of U.S. Steel Stock this Week

Analysts, short sellers, and options players have taken an increasingly pessimistic stance recently

Digital Content Manager
Oct 29, 2019 at 12:03 PM
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The shares of United States Steel Corporation (NYSE:X) are edging back down towards their three-year lows at the $10 level, off 1.2% at $12.12 at last check, after the stock's 100-day moving average thwarted its latest attempt at a rally. This puts X at a 32.9% year-to-date deficit, just ahead of its third-quarter earnings report, which is scheduled for after the close on Thursday, Oct. 31. This isn't the first time the 100-day acted as a ceiling for the stock, and according to one study, it's historically meant more downside for X.

X Chart 29

The study in question, conducted by Schaeffer's Senior Quantitative Analyst Rocky White, show that X has run into this trendline five other times in the past three years. After each of these run-ins, the steel producer was lower one month later, averaging a nearly 14.6% decline. From where it currently sits, a move of similar magnitude would put X near the $10.45 level. 

Traders might want to also look at the steel stock's last eight post-earnings moves. The security has swung wildly in both directions during that time, finishing higher just half the time. During these last two years, the equity has averaged an 8.1% next-day swing, regardless of direction. This time around, the options pits are pricing in an even bigger move, though, at 11.2%. 

Unsurprisingly, an uptick in bearish bets has been seen among options traders recently. X sports a 10-day put/call volume ratio of 0.87 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 74% of all other readings from the past year. Short sellers have echoed this bearishness, with short interest up 17.3% in the last two reporting periods. What's more, these players have a solid 33.2% grip on the stock's available float -- nearly four days at X's average pace of trading. 

There's been no love for X among the brokerage bunch, either. Only one analyst considers United States Steel Corporation a "strong buy," while the other 11 in coverage consider it a "hold" or worse. What's more, the consensus 12-month target price of $10.64 is at an 11.8% discount to current levels. 

 
 

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