Continuing our recent attraction to steel names, we found the charts of Gerdau S/A (GGB) interesting. A low-priced name that could have some big potential.
If you have the time, compare this daily chart of GGB, above, to daily charts of X, AKS, NUE and PKX. In this chart of GGB we can see the basing action in August through November. GGB could not hold its summer lows and worked lower in December and January. Prices finally staged a rally, and then pulled back to retest the 200-day moving average line in early June. We can see a golden cross of the 50-day and 200-day average in April. The daily On-Balance-Volume (OBV) line turned up in March and supports the rally as volume is expanding in the direction of the trend. The Moving Average Convergence Divergence (MACD) oscillator is in a bullish set up above the zero line.
A breakout to new highs for the move up -- over $2.50 -- will be positive while a close back below $1.75 will shake our confidence.
In this three-year weekly chart of GGB, above, we can see the long decline and the developing reversal. Prices are now above the 40-week moving average line, and its slope has begun to turn positive after prices retested it from above. The OBV line on this time frame is moving up and the MACD oscillator is bullish above the zero line. Positive signals on both the daily and the weekly scale!
Assuming GGB breaks out on the upside and continues higher, our targets are $3.50 and then $6.50 longer-term.