Metals stocks ride reopening trade

05/07/21
  • Steel stocks flirt with multi-year highs as metal sets records
  • Some names have spent more than a decade in consolidations
  • Reopening trade helping drive demand

While industrial metals like aluminum, copper, and steel typically take a back seat to their precious cousins gold and silver in the minds of most traders, their second-class status certainly doesn’t have anything to do with trading performance—at least not recently.

While gold and silver have been doing a decent job of holding above their late-March lows, copper prices have been flirting with all-time highs lately (futures hit a fresh contract high yesterday), and steel prices have been setting new records for most of this year—and have nearly doubled since late January. Steel stocks have been responding:

Chart 1: U.S. Steel (X), Commercial Metals (CMC), and Ternium (TX), 3/31/09–5/6/21 (monthly). Steel stocks price chart. Steel stocks ride metal’s surge.

Source: Power E*TRADE


U.S. Steel (X), Commercial Metals (CMC), and Ternium (TX) are all up at least 40% since the end of January. And while all three have been rangebound for most of the past dozen years, TX recently approached the high of its long-term range, CMC broke out to a nearly 13-year high, and X has recovered around half of its 2018–2020 sell-off.

While industry players appear to be maintaining a bullish outlook on steel demand for the next several months,1 it’s always particularly difficult to gauge a market’s “potential upside” when it’s trading in uncharted territory. Industrial metals have been one of the beneficiaries of a resurgent global economy that has spurred demand for cars, houses and everything in between.(Speculation about possible infrastructure spending probably hasn’t hurt, either.)

The following chart shows the past several months of trading in CMC, which was the strongest performer of the steel trio over the past few months, thanks to an explosive breakout from a six-month trading range:

Chart 2: Commercial Metals (CMC), 7/20/20–5/6/21. Commercial Metals (CMC) price chart. Near 13-year highs after breakout rally.

Source: Power E*TRADE


However, the stock has pulled back since hitting its highest level since June 2008, even though steel prices continued to rally. That doesn’t necessarily imply the end of the trend in steel stocks or steel itself—commodities and the stocks that do business in them are often highly correlated, but don’t always trade in lockstep—but it is a good reminder that hot trends should be handled with care.

Trends almost always have temporary setbacks, and patient traders and investors who wait for markets to come to them tend to do better than those who chase prices and hope that a setback comes later rather than sooner.

Market Mover Update: BioNTech (BNTX) extended its pullback from Monday’s record high of $208.90 to 31% when it traded as low as $145 yesterday before bouncing (see “When all the news is in”).

Skillz (SKLZ) appeared on yesterday’s LiveAction scan for symbols with implied volatility (IV) lower than their 30-day historical volatility, and its IV was also below its 30-day average for all expirations through June 25 (see “Going vertical”). Lower IV often translates into lower options prices.

Fastly (FSLY) padded its track record of selling off on earnings, falling more than 25% intraday yesterday—its seventh decline in eight earnings releases.

Today’s numbers include (all times ET): Employment Report (8:30 a.m.), Preliminary Wholesale Inventories (10 a.m.).

Today’s earnings include: Cigna (CI), DraftKings (DKNG).

Today’s IPOs include: iPower (IPW).

 

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1 S&P Global Platts. US finished steel prices expected to remain high through September: poll. 4/12/21.
2 Bloomberg.com. The World’s Industrial Comeback Drives Metals to Multi-Year High. 4/24/21.

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