US Steel Below Death Cross, but Weekly Chart Is Positive

United States Steel Corporation (X) has been below a death cross on its daily chart since Aug. 19, 2018. However, its weekly chart is now positive. The American steel producer was founded in 1901 and is headquartered in Pittsburgh, Pennsylvania.

Demand for steel depends heavily on the automobile industry. Analysts expect that steel demand will pick up through the end of this year and into 2021. To take advantage of improving auto, appliance, and other construction markets, U.S. Steel has reactivated some of its blast furnaces.

The company has lost money in its past four quarters, but those losses were less than expected by analysts. The stock closed Tuesday, Aug. 18, at $7.93, down 30.5% year to date and in bear market territory at 45.4% below its Dec. 11, 2019, high of $14.52. The stock is also in bull market territory at 74.3% above its March 18 low of $4.55.

The daily chart for U.S. Steel 

The daily chart for U.S. Steel shows that the stock has been below a death cross since Aug. 13, 2018, when the 50-day simple moving average fell below the 200-day simple moving to indicate that lower prices would follow. This sell signal tracked the stock lower all the way to its March 18 low of $4.55.

Note the selling opportunities on strength to the 200-day simple moving average. This occurred at $14.35 on Dec. 11, 2019, and again on June 5, 2020, when the average was $9.92. The stock is now just above its 50-day simple moving average at $7.78 and below its 200-day simple moving average at $8.99. Its quarterly value level is $6.48.

The weekly chart for U.S. Steel

The weekly chart for U.S. Steel is positive, with the stock above its five-week modified moving average at $7.64. The stock is well below its 200-week simple moving average, or reversion to the mean, at $222.73.

The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 22.23 this week, up from 20.64 on Aug. 14. Back at the March 18 low, this reading was 8.38. This is below the 10.00 threshold on a scale of 00.00 to 100.00, which made the stock "too cheap to ignore."

Trading strategy: Buy U. S. Steel shares on weakness to the quarterly value level at $6.48. Reduce holdings on strength to the 200-day simple moving average at $8.99.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.