United States Steel Corp. (X) shell-shocked shareholders after posting a 2-year high at $41.83 in February, cut in half in an industry-wide rout triggered by lower than expected Chinese growth and repeated delays in Trump administration infrastructure initiatives. The stock has settled near $20 in recent weeks and is working through a rounded basing pattern that could yield a tradable low

Wall Street upgrades in the last two weeks suggest the stock is back on their radar, with Credit Suisse and Standpoint Research analysts looking for higher prices in the short-term. Even so, it faces stiff resistance between $24 and $28 due to a high volume gap posted on April 26 after the company missed first-quarter profit and revenue estimates while lowering fiscal year 2018 guidance.

A pullback trade here isn’t for everyone because quick upside is unlikely, given significant overhead supply, but long-term and swing traders could benefit by entering tiered positions as short-term buy signals go off. Tight stop losses will be needed with both strategies because long-term relative strength readings still expose the stock to a trip into the mid to upper-teens.

X Long-Term Chart (1991–2017)

This old school industrial giant began trading in its current form in 1991, settling into a long-term trading range, stuck between support at $20 and resistance in the mid-40s. It broke down when the tech bubble in 2000, with the decline settling at an all-time low near $9.50 in 2003. A mid-decade uptrend posted the strongest gains in its public history, reaching an all-time high at $196 in June 2008.

The bottom dropped out during the economic collapse, dumping the stock more than 170-points in just five months. It bounced at $20.71 in November and stalled in the 40s a month later, ahead of an even lower low at $16.66 in March 2009. The subsequent recovery wave failed to alter the bleak technical landscape, reaching the upper-60s in 2010, with that level unchallenged in the last seven years.

The stock tested the 2010 high in 2011 and sold off, bouncing at the bear market low in 2013 while a lower high into 2014 got also sold, triggering a 2015 breakdown that hit an all-time low in January 2016. Price action since that time carved a multi-wave bounce that stalled near $40 in December, followed by a test that yielded a failed breakout and steep decline in May 2017.

X Short-Term Chart (2016–2017)

The rally into 2017 failed to end the 9-year string of lower highs, keeping the long-term downtrend fully intact, but the decline has now reached 6-year support that was broken in September 2015 and remounted in May 2016. It’s also flashing extremely oversold readings in several time frames, raising odds for a bounce that could generate profits for aggressively managed positions.

Price action since mid-May has congested into a symmetrical triangle centered at $20.50, with a breakout targeting the 50-day EMA, which is declining into the bottom of the May gap. That level is hiding a large supply of trapped shareholders, raising odds for violent whipsaws in or around that price zone. As a result, short-term traders should take opportune profits on a rally into that level and get out of the way. That may not be an option for long-term positions, highlighting the urgency of low average entry prices that can withstand high volatility.

The Bottom Line

U.S. Steel has reached deep support near $20 that could support a sizable bounce in coming weeks. Multiple resistance levels predict high volatility and two-sided price action once that uptick is underway, favoring quick exits for the fast-fingered crowd and a ton of patience for long term players.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>