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Steel and aluminum stocks CENX, AA, and AKS are breaking out today, despite lingering skepticism

Apr 19, 2016 at 1:03 PM
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Steel and aluminum stocks -- not unlike silver producers -- are on the rise today, thanks to upbeat analyst attention, and after United Steelworkers (USW) filed an official complaint over vast aluminum imports "and failed trade policies that have decimated American manufacturing." The International Trade Commission is overseeing an investigation on the matter, and is due to make a preliminary ruling by June 17. Three stocks breaking out today -- in spite of lingering skepticism -- include Century Aluminum Co (NASDAQ:CENX), Alcoa Inc (NYSE:AA), and AK Steel Holding Corporation (NYSE:AKS).

  • CENX is up 12.7% at $8.36, and has added 88.7% year-to-date atop support from its rising 10-week moving average. Options on the equity are light in absolute volume, but at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio sits at a whopping 32.29 -- in the 91st percentile of its annual range. Today, CENX calls are trading at 17 times their average intraday rate. There appears to be some buy-to-open activity at the May 9 and 10 calls. That means buyers are betting that Century Aluminum Co (NASDAQ:CENX) will extend its rally above the $9 or $10 level before May 20, when the front-month options expire. But all three analysts providing coverage on the stock maintain a lukewarm "hold" rating. And short interest, though down nearly 7% during the most-recent two-week reporting period, still accounts for about 23% of CENX's available float. CENX is due to report quarterly earnings next Thursday. A positive earnings surprise could translate into a round of upgrades, or a mass exodus of option bears or lingering shorts.
  • AA has added 2.1% to trade at $10.31 -- a year-to-date high -- still enjoying support above its 40- and 200-day moving averages, and extending its rally above the round-number $10 level. Like CENX, AA has seen short interest fall slightly in recent weeks, but these bearish bets still account for 12.3% of the stock's total float, or more than six sessions' worth of pent-up buying power, at AA's typical daily pace. Sentiment from the options pits has been especially pessimistic lately, with the equity's 50-day put/call volume ratio at the ISE, CBOE, and PHLX now parked at an annual peak of 1.04. And unwinding of bearish sentiment in light of the stock's continued strong performance could help drive the shares of Alcoa Inc (NYSE:AA) even higher.
  • AKS has been on a tear lately, and is ahead 4.1% at $5.09 -- its highest point since June -- bringing its 2016 lead to an astounding 127%. The stock has outperformed the S&P 500 Index (SPX) by 133 percentage points over the last three months, yet 11 out of 13 brokerage firms rate it a "hold" or worse, with a consensus 12-month price target of just $3.40. Today, however, Barclays raised its price target on AKS to $3 from $2 citing rising steel prices. Short interest also represents over 21% of AKS' available float. And in the options pits, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.84 is higher than 88% of all readings in the past year. Today, AKS options are crossing the tape at three times their usual intraday pace, with 17,000 puts traded so far -- well over twice the number of calls. The company will step into the earnings confessional next Tuesday, and the stock has enjoyed a positive one-day post-earnings swing in six of the last eight quarters -- including the last five in a row. A positive earnings surprise could send bears to the exits and help AK Steel Holding Corporation (NYSE:AKS) in its quest for annual highs.

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