While the steel industry as a whole as performed poorly over the past year, the decline in Nucor has been far more orderly than the declines from rivals Allegheny Technologies (NYSE: ATI) and Arcelor Mittal (NYSE: MT). Allegheny shares have dropped over 75% since June 2014 and a labor dispute with the United Steel Workers is potentially accelerating the decline. Arcelor Mittal has seen its shares fall by over 67% just since its May high.
Nucor, on the other hand, is only down around 30% from its all-time high set in September 2014. While its decline isn’t as sharp as its competitors, the momentum toward Nucor is still to the downside.
Looking at the daily chart, we see a downward-sloped trend line that connects the closing highs from the past six months and that trend line is hovering right around $41.50 at this time with the stock closing at $39.73 yesterday. Should the stock bounce just a little in the next few days, it will face the resistance of the trend line.
Turning to the weekly chart, we see the previously mentioned trend channel that has contained the price for the last year and a half with the upper rail right at the $43 level. If the resistance from the trend line on the daily chart and the upper rail of this channel aren’t enough resistance for you, they are backed by another layer of resistance in the form of the 52-week moving average, which is currently at $44.08.
While Nucor has been falling for some time now, the sentiment is fairly neutral with a short interest ratio of 3.13. Eleven out of 19 analysts rate the stock as a “buy.” One funny thing about the analysts’ ratings on Nucor is there hasn’t been a downgrade or an upgrade since the summer of 2013.
This lack of action suggests a sense of indifference toward the stock and that could allow the technical picture to continue dictating price.
There are a couple of ways you could play Nucor. First, you could sell out-of-the-money calls and benefit from the premiums collected.
The second way is to wait for the stock to bounce a little and let it get up closer to the daily trend line and then short the stock.
There is minor support at the recent low of $36.76, but I think the more realistic target is down below $31 as that was the low back in 2012.
As for a stop-loss point, I would say a close above the 52-week moving average would be a sign that the downtrend is over.
This article is brought to you courtesy of Rick Pendergraft from Wyatt Research.