AK Steel (AKS) made a blazing rally from October to January. Prices have corrected lower over the past six weeks, and traders could consider using this pullback to position or re-position from the long side.
In this one-year daily chart of AKS, below, we can see how the price of AKS tripled in the first half of 2016 -- with a rally to $6 -- and then corrected down to $4, around the rising 200-day moving average line. From that $4 low, AKS soared to $11 in the next three months.
Recently AKS has pulled back to around $8, with a declining On-Balance-Volume (OBV) line telling us that there was some significant selling on the way down. Momentum is starting to improve again -- and this may be a good location to approach the long side.
We used a 10-year weekly chart of AKS, above, to show the extent of this base pattern and to give us an idea of the next major upside price target, if AKS rallies past $11. We can see that $15 and then $20 are the next resistance levels above the market. This chart also shows how strong the volume of trading has become in 2016, and this tells us that a lot of buying has been done.
This longer-term Point and Figure chart of AKS, above, goes back a number of years and shows how the $11 level has stopped the advance in the past. A breakout over $11 to $11.50 would give us a longer-term upside price target of $24.25, or approximately a triple from current levels. Pretty ambitious.
Bottom line: There seems to be plenty of upside on AKS. Although we are not particularly worried, we always need to focus on risk. Either buy AKS here and risk below $6, or buy AKS on a close above $11.50.
