United States Steel Corporation (X) has dropped to price levels traded during the Obama administration after relinquishing the last gains posted during Donald Trump's presidency. The stock rallied to a seven-year high in the upper $40s in March 2018 and turned sharply lower, dropping more than 70% into the last trading day of May 2019. A June bounce has raised hopes for a long-term bottom, but the decline has carved a series of false dawns, warning remaining bulls to lower expectations.
Steel tariffs and worldwide trade tensions have hurt American steel companies in the past 18 months, rather than protecting them from foreign competition, in a perfect example of unintended consequences. The pain has continued through mid-year, with U.S. Steel recently guiding second quarter earnings per share (EPS) below previous forecasts and idling three blast furnaces in an effort to match demand with a shrinking order book.
X Long-Term Chart (1993 – 2019)
A modest uptick stalled at $46 in 1993, giving way to a slow-motion downtrend that continued into March 2003's low at $9.90. The stock turned sharply higher through the middle of the decade, carving a historic advance that accelerated into a parabolic bubble in the first quarter of 2008. It posted an all-time high at $196.00 three months later and rolled over, giving up nearly five years of gains in the next nine months.
The decline ended at $16.80 in March 2009, replaced by a steady uptick that stalled at 50-month exponential moving average (EMA) resistance in the $60s in 2010. Three attempts to mount this barrier failed, yielding renewed downside that reached the 2009 low in October 2011. The stock bounced at this support level three times into 2014 and turned higher, stalling at 200-month EMA resistance in the $40s while posting the third lower high off last decade's parabolic peak.
The stock broke the 2009 low in 2015 and dropped to an all-time low in the single digits, ahead of a steady uptrend that stalled just five points below the 2014 high in 2017. Additional upside into the first quarter of 2018 mounted four-year resistance by $1.09 before turning tail in a severe decline that has now entered its 16th month. Price action has broken deep harmonic support near $16.00 in recent months, exposing a steeper slide into the 2016 low.
The monthly stochastic oscillator crossed into a sell cycle in February 2018 and entered the oversold zone in September. A bullish crossover in January 2019 failed in March, highlighting extreme weakness while dropping the indicator through the December low. An upturn at this depressed level in the coming months could signal more supportive price action, carving a small double bottom reversal.
X Short-Term Chart (2015 – 2019)
The decline broke 50- and 200-day EMA support in August 2018, while recovery attempts have failed four times at or near 50-day EMA resistance. The stock hasn't tested the 200-day EMA since the breakdown, signaling a major downtrend that has attracted almost no institutional buying interest. The bounce into June has reached a narrow alignment between the short-term moving average, the .786 Fibonacci retracement level of the two-year uptrend, and the broken 2009 low. This formidable barrier predicts a reversal and renewed selling pressure.
The on-balance volume (OBV) accumulation-distribution indicator ended a long-term buying spree in 2010 and entered a brutal distribution phase that continued into the 2016 low. A period of healthy buying interest ended at 2010 resistance in 2018, giving way to a decline that has retraced a smaller percentage of the two-year uptrend than price. In turn, this bullish divergence could eventually support more potent upside for the beaten-down steelmaker.
The Bottom Line
U.S. Steel stock undercut the 2009 low in April 2019 and has bounced back to this resistance level, raising the odds for a reversal and renewed downturn that could reach the 2016 low in single digits.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.