U.S. Steel (X) Doubles in Price in Just 6 Weeks

United States Steel Corporation (X) stock has more than doubled in price in the past six weeks, lifting to the highest high since April 2019. It is also trading above the 200-week exponential moving average (EMA) for the first time since November 2018, signaling the steelmaker's first uptrend since February of that year. Even so, the momentum-fueled advance has already reached extremely overbought levels that triggered reversals in 2011, 2013, and 2018.

This rally is truly ironic, given President Trump's promise to restore America's steel mills to their former glory during his 2016 campaign. U.S. Steel stock topped out just one year into his presidency, a victim of the developing trade war with China, and waited for Joe Biden to win the 2020 election before ejecting into a new uptrend. To be honest, COVID-19 provides the real reason for the price surge, triggering a worldwide commodity rally after the first quarter crash.

Tale of the Tape

The former laggard got its first lift after raising third quarter 2020 guidance in September, expecting a smaller-than-expected loss. As Cowen noted at the time, "We believe stronger cost performance in Flat Rolled and Europe were partially offset by softer results in Tubular." Traders faded the uptick, due to continued quarterly losses and shrinking revenue, but sentiment improved once in again in October after the company opened a new electric arc furnace in Alabama.

Third quarter results in late October beat higher expectations despite a 23% revenue decline, adding to a positive feedback loop that accelerated after GLJ Research upgraded U.S. Steel shares to "Buy" just before Thanksgiving. The stock has added points nearly every session since that bullish call, accelerating on Tuesday after the company acquired the remaining equity of Big River Steel and reported free cash of over $1.7 billion.

Wall Street coverage on U.S. Steel stock has dropped off the radar in recent years, with just five analysts following the issue on a regular basis. Consensus now stands at a "Hold" rating based upon one "Buy," two "Hold," and two "Sell" recommendations. Price targets currently range from a low of just $3 to a Street-high $17.30, while the stock is set to open Wednesday's session more than $2 above the high target. This disconnect predicts that price will settle at lower levels in coming weeks.

U.S. Steel Monthly Chart (Log Scale) (2007 – 2020)

The stock rocketed higher in 2007, underpinned by rapid industrialization in China and other BRIC nations. It posted an all-time high at $196 in 2008 and crashed, bottoming out in the mid-teens just six months later. Lower highs in 2010 and 2014 reaffirmed the downtrend, while 2009 support held into a 2015 breakdown that settled in the single digits. The decline finally ended the string of lower highs in 2018 when the post-election uptick topped out just one point above the 2014 high.

The subsequent downtick relinquished more than 95% of the stock's value into March 2020, when it undercut the 2016 low and bounced in a potential double bottom reversal. The current rally still hasn't reached the .382 Fibonacci selloff retracement level, and it will take additional upside into the 2018 high to confirm a new uptrend. However, none of that matters much when a stock gains more than 400% in just nine months.

The Bottom Line

U.S. Steel stock has entered a strong uptrend, doubling in price since October, but it may take years to overcome resistance generated by the 95% decline between 2018 and 2020.

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