Non-farm payroll days can be tough. Lately we have seen that pre-market looks in individual names can be crushed in just a few minutes after the NFP release. If we don't completely fall apart here on Friday, then energy and materials are going to deserve another look after Thursday's action.
Right now, I'm focusing on steel, but I would place natural gas as a close second, with oil a distant third. Note, I didn't mention coal.
When looking at steel, I'm focusing only on the short term here, so the daily chart is it for me. When looking for opportunity on a snapback, the Market Vector Steel ETF (SLX) looks poised. Granted, we are off the bottom, but catching the exact bottom is just too difficult. I prefer to see a bottoming pattern. This helps define a stop level, which is a boon from a risk management perspective.
For instance, if the low from July 27 is broken on SLX, why would you want to continue to hold it? One might even use the $26.90 as a yellow flag or reduce area. SLX looks ready to push on any move over $28. The Relative Strength Index (RSI) is poised to move over 50 and into bullish territory, as it currently stands at 47.38.
The Slow Stochastics has already made its way above 50 and the Chaikan Money Flow (CMF) indicator is about to push into buy territory. I do think a rally would be capped, though.
There is resistance with a 50-day moving average and a gap fill right around $30 per share. Any breakout here should reach that level, but will likely be turned back for a retest of $28 again before any significant recovery can take place.
A few individual names appear to have already achieved what the broader steel ETF is attempting. For instance, check out ArcelorMittal (MT) and its daily chart.
The Market Vector Steel ETF has a "V" shape, while MT is more of a rounding bottom. ArcelorMittal has already managed to break above price resistance with a very strong Slow Stochastics, a CMF already above any level seen in the last five months, and a bullish trend in the RSI.
This one looks set to test $10. The biggest challenge is the 50-day moving average, just under $10. I'm a bit more optimistic MT can break this level while SLX won't. The reason is, if SLX does hit $30, it should carry all the steel names, and MT is the biggest in the group.
I could see a push all the way into the $10.50-10.75 range. Then, when SLX pulls back, the 50-day MA should act as support for MT, keeping it above $10.
I'm leaning a bit more towards SLX right now, and then switching to MT if it gets above its 50-day MA.
But first things first. Let's see what the nonfarm payrolls report does to the market early in the day.