A coordinated global economic recovery and a strong U.S. dollar are the ingredients for a rally in U.S. steel stocks, and that's exactly what the charts are indicating. The broader market continues to confirm, just about every day, that there is an economic recovery under way. Meanwhile the U.S. Dollar Index is in the process of breaking out of a well-defined base on its chart, and reversing its previous long-term downtrend.
The weekly dollar chart shows the the index breaking below a long-term uptrend line earlier this year. It continued to move lower before finding support at the 91 level, also the 38% retracement level of the 2011 low and the 2017 high. This was a lower low and was followed by a higher low, forming an inverse head-and-shoulders pattern below neckline resistance in the 94 area. This week that neckline resistance was taken out and the greenback closed near its high.
The broad market rally and the base in the buck are in place, so now let's take a look at the weekly charts of the major U.S. steel producers.
Shares of Nucor (NUE) have be trending lower in a declining channel pattern since the beginning of the year. Last week they moved above the channel downtrend line and over the 40-week moving average. They followed up this week with another close above those former resistance-now-support levels. Moving average convergence/divergence has made a bullish crossover and the accumulation/distribution line has crossed above its 21-period signal average.
The price action along with the momentum and money flow indications suggest that a shift in the direction of the previous trend is under way.
USX-U.S. Steel (X) has been testing the rim-line resistance level of a cup-and-handle pattern, which is being reinforced by the 40-week moving average. The stock closed off its high this week but in a narrow range that held above the moving average. The relative strength index is flat and holding above its 21-period average and center line, but the Chaikin oscillator, a measure of the direction of money flow has crossed over its center line.
The upward price momentum is modest but positive money flow is improving. A confirmed break above pattern resistance projects a price objective measured by taking the height of the cup and adding it to the rim line, and it targets the $38 area.
Steel Dynamics (STLD) shares have been trading in a horizontal channel for the last year. The lastest retest of channel support was in September, after which the stock price saw a sharp bounce that took it back above its 40-week average and on to retest channel resistance. It was not able to decisively penetrate that level this week and closed right on it.
Moving average convergence/divergence has made a bullish crossover above its center line, reflecting the positive price momentum. The Chaikin money flow reading went positive along with the momentum indicator, supporting the bounce and the potential for a breakout. A breakout from the channel projects a potential 20% move higher in the stock price.