President Donald Trump touted the rebirth of the American steel industry after placing restrictions on foreign products early in his administration, but that hasn't help United States Steel Corporation (X), which has now sold off to the lowest low since the stock came public in April 1991. Even worse, the two-year downtrend is now picking up steam, raising fears that the company will head into bankruptcy or be forced to find an attractive suitor.
Cyclical and biological factors have taken control from trade and production constraints, with soaring bond markets telegraphing an economic contraction that could become a major recession. Industrial stocks live and die by this expansion-contraction cycle because their products aren't needed when other corporations don't invest in their businesses. It's even worse when companies choose to buy back stock rather than grow into new markets, as they did after the massive 2018 tax cuts.
X Long-Term Chart (1991 – 2020)
The company came public in its current incarnation in 1991, opening in the mid-$20s and gaining ground into the 2003 top at $46.00. It then entered a multi-year downtrend, ticking lower at a steady pace into the new millennium and 2003 low at $9.61. Bulls took control through the middle of the decade, driven by China's rapid infrastructure expansion, lifting U.S. Steel stock in a historic uptrend that ended at 2008's all-time high just below $200.
The stock plunged during the economic collapse that year, descending in a straight line that relinquished an astounding 96% of the five-year uptrend into the March 2009 low at $16.66. A recovery wave into the new decade made little progress, retracing about 30% of the prior decline before posting a 2010 high at $65.44. That marked the highest high in the past 10 years, ahead of range-bound action between that resistance level and the prior low.
A 2015 breakdown picked up steam into the first quarter of 2016, bottoming out at $6.15, which marked the lowest low in the stock's public history up to that time. The subsequent bounce gained momentum after the presidential election, topping out at a seven-year high in the upper $40s in February 2018. The subsequent decline broke short-term support in July, signaling a downtrend that has continued to post new lows into last week's 100% retracement of the two-year uptrend.
The sell-off hit an all-time low at $5.85 on Mar. 9, while price action in the past two sessions has been testing four-year support. Although this is a high-odds price zone for a reversal and multi-week recovery wave, the coronavirus has triggered intense volatility that has broken strong support levels on more resilient issues. U.S. Steel stock is unlikely to buck the tide, given its lowly status, suggesting more downside in coming weeks.
X Short-Term Outlook
The monthly stochastic oscillator has now dropped to the most extreme oversold technical reading since August 2000, highlighting historic weakness that could easily expand into a death spiral. Bullish contrarian signals are going off at the same time, insisting that current losses will be unsustainable. It is best to err on the side of caution given current events and set aside available capital to buy more resilient equities in coming months.
The Bottom Line
U.S. Steel shares sold off through the 2016 low last week, posting an all-time low. The stock has fallen a stomach-churning 87% in the past two years, raising the threat of bankruptcy or the need for a fire sale acquisition by a well-heeled suitor.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.