United States Steel Corporation (X) stock has sold off to a two-year low in the mid-teens, despite Trump administration promises that American steel industry profits would blossom under protectionist policies that haven't worked for several generations. Many supporters took the president at his word when the duties were announced last year, scooping up shares near seven-year highs, expecting local companies to profit from local production.

The steel giant has now dropped more than 60% off the March 2018 rally high, trapping complacent shareholders and other true believers in catastrophic losses. More importantly, a secular downtrend may just be getting under way that could eventually target the deep 2016 low in the single digits. Doing the math, that plunge would translate into a 60%-plus haircut from the most recent closing price of $18.51.

An infrastructure deal that requires American steel could forestall selling pressure, but it's hard to imagine that bill passing the divided Congress after a Republican majority failed to act for two years. No one in Washington understands the concept of compromise in early 2019, and that's unlikely to change in the coming months. As a result, owners of U.S. Steel may have little choice but to dump their shares at even lower prices.

X Long-Term Chart (1993 – 2018)

Long-term technical chart showing the share price performance of United States Steel Corporation (X)

The stock topped out in the mid-$40s in 1993 after issuing new publicly traded shares in 1991. It sold off for the next 10 years, missing the millennial bull market before bottoming out at $9.91 in April 2003. An impressive recovery wave then took control, powered by a historic Chinese infrastructure project, topping out near $200 in June 2008. The stock relinquished nearly 100% of those gains in the next nine months before finding support seven points above the 2003 low.

A bounce into the new decade stalled just above $70, marking the highest high in the past eight years, ahead of sideways action that broke to the downside in 2011. The subsequent decline undercut the bear market low by one point in 2013, generating a reversal that many folks thought would power the next bull run. However, buying interest dried up below the 2010 high, carving the next in a series of lower highs that continued into 2018.

A downtrend triggered by the commodity collapse broke eight-year support in the mid-teens in 2015, reaching an all-time low in the single digits before dip buyers came to the rescue. It remounted broken support in 2016, built a basing pattern at that level and took off in a two-wave advance that ended just 1.01 points above the 2014 high in March 2018. Price action into 2019 has given up both rally waves, dropping the stock back to 2008 support, which is now getting tested for the third time.

Oversold Bounce Ahead?

The monthly stochastics oscillator has dropped to an extreme level that triggered reversals in 2009, 2011 and 2015 (black line), while the 10-month decline has reached long-term support that was tested successfully in 2016. This set-up bodes well for an oversold bounce that might offer shareholders a final opportunity to mitigate large losses. The price structure might even support a longer-lasting recovery wave that tests major resistance in the mid-$20s.

However, reversing long-term bearish sentiment will be difficult after months of relentless distribution and growing trade tensions that are unlikely to be solved with a quick China or European Union deal. Lingering anger from North American trading partners over post-NAFTA tariffs could dampen local sales as well, breaking critical support and dropping the pride of the American steel industry to new lows.

The Bottom Line

U.S. Steel stock has sold off to the lowest low since the 2016 election, feeding off a large supply of disillusioned shareholders. An oversold bounce could unfold in the coming weeks, but the smart money will be looking for low-risk price levels to sell short rather than getting on board in hopes of a renewed uptrend.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.