{"id":44876,"date":"2013-12-03T05:35:50","date_gmt":"2013-12-03T10:35:50","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=44876"},"modified":"2013-12-03T05:35:50","modified_gmt":"2013-12-03T10:35:50","slug":"steel-stocks-head-fake-or-legitimate-breakout","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/12\/03\/steel-stocks-head-fake-or-legitimate-breakout\/","title":{"rendered":"Steel Stocks: Head Fake or Legitimate Breakout?"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

The world\u2019s newest Nobel Prize-winning economist, Robert Shiller, didn’t mince words this weekend. He told Germany\u2019s Der Spiegel<\/i> magazine, “I am most worried about the boom in the U.S. stock market.\u201d<\/p>\n

Why? \u201cBecause our economy is still weak and vulnerable,” says Shiller.<\/p>\n

While I don\u2019t share his concerns about U.S. stocks (yet), I\u2019ll concede that the economic recovery<\/a> has been less than robust. Nowhere has this been more evident than in the steel industry.<\/p>\n

Titans in the sector, like Nucor <\/b>(NUE<\/a>), are still struggling to recover. In the first nine months of 2013, sales and net income both decreased <\/i>by roughly 14%.\u00a0Compared to peak activity in 2008, Nucor\u2019s sales and net income over the last 12 months remain 21% and 75% below their annual highs, respectively.<\/p>\n

And yet share prices for Nucor and its peers – like U.S. Steel<\/b> (X<\/a>), AK Steel<\/b> (AKS<\/a>) and Steel Dynamics<\/b> (STLD<\/a>) – have been perking up lately. Take a look:<\/p>\n

\"Is<\/p>\n

Over the last three months, they\u2019re all up by double-digit levels. Heck, the recent rallies by U.S. Steel and AK Steel make the S&P 500 Index\u2019s gains for the entire<\/i> year seem miniscule. <\/a><\/p>\n

Is this the beginning of a legitimate recovery, or merely a head fake that should be ignored?<\/p>\n

It\u2019s time to find out and invest accordingly\u2026<\/p>\n

High Risk, High Reward?<\/b><\/p>\n

Steel producers play a crucial role in the global economy, since the metal is used in everything from automobiles to bridge building. As such, steel companies can serve as an excellent harbinger of better economic times ahead, which brings us back to Shiller\u2019s observation.<\/p>\n

Even as the global economic recovery extends into its fifth year, steel demand remains lackluster at best.<\/p>\n

Case in point: ArcelorMittal <\/b>(MT<\/a>), the world’s largest steel producer, recently reported a narrower loss for the third quarter. But the company said it was only \u201ccautiously optimistic\u201d about prospects for 2014.<\/p>\n

Now, it\u2019s hard to put much stock in that assessment. Earlier this year, the company assured investors that demand would be strong in 2013, and that has hardly come to fruition.<\/p>\n

At the same time, the World Steel Association is only forecasting a modest 3.3% uptick in steel demand for 2014, compared to a 3.1% increase for this year.<\/p>\n

Nevertheless, the analysts over at Goldman Sachs<\/b> (GS<\/a>) recently upgraded a trio of steel stocks from \u201cSell\u201d to \u201cBuy,\u201d based on the outlook for stronger domestic demand. I wouldn’t follow their lead, though.<\/p>\n

We\u2019re heading into the traditionally weakest quarter for steel companies. Not to mention, the industry is still suffering from overcapacity.<\/p>\n

What\u2019s more, cheap foreign steel promises to keep a lid on any meaningful price increases – which, in turn, will dampen profitability.<\/p>\n

Or as the analysts at Wells Fargo <\/b>(WFC<\/a>) put it, \u201cWe expect pricing to weaken meaningfully in H1 2014 due to increasing levels of import competition\u2026 [And we] believe there is now greater risk to 2014 estimates.\u201d<\/p>\n

Greater risk? That doesn’t sound like the makings of a legitimate recovery to me. And these aren’t the conditions necessary to support a prolonged rally in share prices.<\/p>\n

Bottom line: I\u2019m convinced that the latest price swings for steel stocks are merely a head fake. So a short-term correction promises to be close at hand.<\/p>\n

If I\u2019m wrong, so be it. Steel stocks have a long way to run before they get back to their 2008 peaks.<\/p>\n

Unlike the S&P 500 that recouped all its losses and keeps hitting new all-time highs, the average steel stock is still off about 60% from its peak. So there will be plenty of time to \u201cgo long\u201d steel stocks and still profit handsomely.<\/p>\n

For now, let\u2019s keep a close watch on the trend.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

 <\/p>\n

The post Steel Stocks: Head Fake or Legitimate Breakout?<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: Steel Stocks: Head Fake or Legitimate Breakout?<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com The world\u2019s newest Nobel Prize-winning economist, Robert Shiller, didn’t mince words this weekend. He told Germany\u2019s Der Spiegel magazine, “I am most worried about the boom in the U.S. stock market.\u201d Why? \u201cBecause our economy is still weak and vulnerable,” says Shiller. While I don\u2019t share his concerns about U.S. stocks (yet), I\u2019ll … <\/p>\n

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