U.S. Steel Stock Could Test 2016's All-Time Low

United States Steel Corporation (X) is testing 2019's three-year low and could break down in coming weeks, triggering a secondary decline that reaches the 2016 all-time low in the deep single digits. Chronic weakness in American manufacturing and an economic expansion that is getting "long in the tooth" are underpinning the latest downdraft at the same time that China steel subsidies are cancelling the supportive impact of American tariffs.

Moody's Investor Service downgraded the financial outlook for the American steel industry to "negative" from "stable" in October 2019, noting that benchmark prices in the United States had fallen from $800 per ton to $520. The new rating will raise borrowing costs, adding a fresh headwind to shrinking margins. Moody's expects little or no improvement in this bearish trend in 2020, which is likely to keep pressure on U.S. Steel and its few rivals.

X Long-Term Chart (1991 – 2020)

The currently traded common stock came public at $23.13 in April 1991 and eased into a narrow trading range that broke to the upside at the start of 1993. The uptick topped out in the mid-$40s a few months later, establishing a major resistance level that took 12 years to overcome. The subsequent downtrend persisted into the new millennium, finally ending in the second quarter of 2003 after posting a deep low at $9.61.

U.S. Steel shares posted historic gains during the mid-decade bull market, underpinned by rapid industrial expansion in China, India, and other BRIC countries. The rally mounted 1993 resistance in the $40s in 2005 and broke out, lifting to an all-time high at $196.00 in the summer of 2008. The subsequent reversal relinquished more than 85% of the stock's value in just eight months, coming to rest in the mid-teens in 2009.

A bounce into 2010 stalled above $70, marking the highest high of the decade, ahead of a persistent decline that broke the 2003 low in 2015. The stock posted an all-time low at $6.15 in February 2016, less than five points under Friday's closing print, and entered a recovery wave that gathered strength after the presidential election. This impulse finally ended the string of lower highs in place since 2007, mounting the 2014 high by just one point before reversing in March 2018.

The monthly stochastics oscillator entered a buy cycle from the oversold zone in May 2019 but has lost ground since that time in a spectacular failure of this often-reliable indicator. Even so, a bounce above the May high at $12 will confirm more constructive price action, raising the odds for continued upside into December 2018 resistance at $17. Unfortunately, a new secular uptrend will take years or longer to establish, requiring a rally above the 200-month exponential moving average (EMA) in the mid-$30s.

X Short-Term Chart (2016 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator has matched bearish price action, topping out with price in March 2018 and turning lower in a distribution phase that has posted a series of lower highs and lower lows. An uptick above the black trendline is needed to establish a new accumulation phase, requiring a healthy supply of investors to come off the sidelines. A paradigm shift will be needed for that bullish event, most likely through an unexpected surge in worldwide steel demand.

A Fibonacci grid stretched across the 2016 into 2018 rally wave offers guidance on short-term price action, breaking through critical support at the .786 retracement in May 2019. Three attempts to mount new resistance have failed, indicating that the 2016 low and 100% retracement level mark the next downside target. It's hard to argue against that bearish outcome, given the abundance of negatives weighing on this former industrial powerhouse.

The Bottom Line

U.S. Steel price action is capitulating to multiple headwinds, raising the odds that it will test 2016's all-time low.

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