United States Steel Is Breaking Bad

 | Apr 26, 2017 | 11:20 AM EDT
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We last wrote about United States Steel (X) on Feb. 10, concluding, "X is ready for another upside breakout and a possible longer-term price target of $52. Use a sell-stop at $30 for now." X did rally into the end of February and then reversed to the downside.

Our $52 price target was too ambitious. Unless you raised your sell stop you should have been stopped out earlier this month. With prices sharply lower in pre-market trading a fresh look at the charts and indicators for X is in order.

In this daily bar chart of X, below, plotted through Tuesday, we can see a test of the rising 200-day moving average line earlier this month. The chart does not show the pre-market trading around $24-to-$23 per share, as the company posted weaker-than-expected earnings in the first quarter.. The slope of the 50-day moving average line turned negative earlier this month.

The On-Balance-Volume (OBV) probably got the market's signals right when it diverged from the price action in late February. Prices made a higher high in February, but the OBV line did not. Chartists like to see volume expand as prices move higher -- higher volume in an uptrend tells you that more investors are buying into the bullish story.

In the lower panel is the momentum study, and we can now see a bearish divergence from November to February. Momentum made a lower high while prices made a higher high. As prices have weakened in the past two months, the momentum study has made equal lows. This is a bullish divergence but not the strongest category.

In this weekly chart of X, above, we can that prices have been in an uptrend (higher lows and higher highs) since early 2016. Prices were above the rising 40-week moving average line until this morning. The next chart support is the $20 area, where prices stalled last year. The weekly OBV rose steadily from October, but the weekly Moving Average Convergence Divergence (MACD) oscillator crossed to a take-profits sell signal at the end of February.

In this Point and Figure chart, above, we can see that prices have been in a downtrend -- and have broken sharply today. Point and Figure charts do not show gaps, but the support zone or area beginning at $20 is easy to spot.

Bottom line: Assuming that readers of Real Money exercised discipline and were stopped at $30 or higher, we all should be flat. Today's break to the downside will require a period of stabilization -- hopefully above support $20. Failure to hold above support will suggest a deeper and longer bearish phase for X.

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