Industrial metals stocks rocketed higher at the end of 2017, with market players loading up on long positions in anticipation of a first quarter infrastructure spending bill. Delays dampened buying interest into February when tariff threats intensified volatility and selling pressure. Recent presidential comments that Congress won't pass a bill until after the mid-term elections have added another headwind, perhaps killing the nascent uptrend dead in its tracks.

Steel could follow a different path than copper or iron plays in the coming months, with tariffs and retaliation taking the metal into unknown territory. Conversely, gold and silver look good right here, set to benefit from an inflation surge that could overwhelm the Federal Reserve. This mixed environment tells armchair technicians to watch key levels on all major metals because underlying themes could change at any time. (See also: Gold Completes 5-Year Breakout Pattern.)

The SPDR S&P Metals and Mining ETF (XME) posted a lower high after bouncing off a deep low during last decade's economic collapse and entered a severe decline that accelerated through 2015, hitting an all-time low at $11.38 in January 2016. The subsequent bounce mounted the .618 retracement of the 2014 into 2016 selling wave and stalled in December, building a minor top ahead of a rounded correction that yielded a fresh test at resistance in December 2017.

A January breakout cut through the prior high after reaching the .786 retracement, signaling a potential long-term top. The fund is now sitting on the 200-day exponential moving average (EMA), engaged in its fourth test at that level in the past five months, with a breakdown raising the odds for a trip into the 2017 low in the upper $20s. Risk for a greater decline seems low at this time, given the backdrop of a strong world economy and this fund's heavy precious metals component. (See also: Investing in the Metals Markets.)

Freeport-McMoRan Inc. (FCX) shares hit a 15-year low at $3.52 in January 2016 after breaking support at the 2008 bear market low at $7.85. A two-legged bounce stalled at the .382 retracement level at the end of 2006, yielding a decline that established resistance in the mid-teens. The stock broke out above that level in December 2017, surging to a two-year high at $20.25 in January 2018, ahead of a downturn that has now posted a lower high.

The decline has neared support at the 200-day EMA near $16, but the lower high may sap energy during the next bounce, adding a second lower high that completes a descending triangle or channel. It will now take a rally above $19 to improve the technical tone for Freeport shares and generate the buying pressure needed for a rally into the next resistance level, marked by the 2015 high at $23.97. Price action since April 2016 has tracked a rising highs trendline that is slowly approaching that level, signaling limited gains even if bulls take charge.

[Learn more about identifying patterns on stock charts in Chapter 5 of the Technical Analysis course on the Investopedia Academy]

Cleveland-Cliffs Inc. (CLF) shares bottomed out with other metals stocks in the first quarter of 2016, hitting the lowest low since the 1987 crash, and surged higher into February 2017. The rally ended at the .386 retracement level of the 2013 into 2016 selling wave, failing to make a dent in the much steeper decline that started in 2011. Low-energy price action since that time is getting dangerously close to a sell-off that completes a complex head and shoulders top.

A breakdown through the neckline at $6.00 would end the two-year recovery attempt and favor a decline that could reach the 2016 low. This seems implausible given world economic strength, but iron ore continues to struggle and could take another hit if the U.S. and China escalate their developing trade war. It will now take a rally above the potential right shoulder at $9.15 to shift the technical tone in favor of long-suffering bulls. (For more, see: Cleveland-Cliffs Stock: Uptrend Hanging by a Thread.)

The Bottom Line

Industrial metals stocks could be topping out despite the potential for heavy U.S. infrastructure spending in coming years, highlighting the corrosive impact of trade conflicts between major world powers. (For additional reading, check out: Beyond Gold: Top Picks in Industrial Metals.)

<Disclosure: The author held shares of Cleveland-Cliffs Inc. in a long-term account at the time of publication.>