From Taki Tsaklanos: The steel stock market sector is going through rough waters. The sector ETF, SLX, lost another 3.89% this week. Since it peaked in March of this year, SLX is down a staggering 21 percent.
However, the sector went up threefold in the last 16 months. That is impressive to say the least. So a correction was to be expected.
The key question for investors is whether this is a moment to buy the sector.
Barron’s is not very positive on steel. They indicate that most of the steel stock market sector started to trend lower, and recent earnings releases did not stop that trend. “Without commenting on its fundamentals, the market is telling us to stay away.”
So financials and fundamentals are not in favor of this sector right now.
From a fundamental perspective, recent reports show a slowdown in Chinese manufacturing, which might dampen demand for commodities like steel and base metals.
Moreover, Chinese government is visibly tightening its monetary policy, as explained by China Morning Post. Short and long term rates in China have risen to the highest level in two years. That may be slowing the Chinese economy and reducing demand for industrial metals.
The sector ETF SLX arrived at long term support as indicated on the chart. Sector weakness at this price level is really not what steel investors want to see, because, according to InvestingHaven’s research team, “SLX is trading at a critical juncture” right now. If SLX goes lower, is breaks support, and “that would introduce a tactical bear market.”
The VanEck Vectors Steel ETF (NYSE:SLX) closed at $36.60 on Friday, up $0.40 (+1.10%). Year-to-date, SLX has declined -3.15%, versus a 7.23% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Investing Haven.