US Steel Major Rally from Support Could Mean Economic Growth Ahead

Jan 7, 2010: 3:07 PM CST

I found the daily chart of US Steel (X) very interesting, in that it showed a good example of a Head and Shoulders which triggered a tradeable move into support, and then we’ve had a non-stop rally to fresh recovery highs – that’s bullish for stocks in general.  If steel demand is a leading indicator for economic growth, then this is certainly a move to watch.

Let’s take a look.

Let’s start with the Head and Shoulders pattern that formed from August until October, with the break (trigger) to short in late October.

The pattern is clear and has a descending trendline for the neckline.  Classic analysis allows us to short any break of the trendline and target a ‘measured move’ of the distance from the Head to the Neckline (in this case, roughly $10).

That gave a breakdown price target of $30… though price found support at the convergence of the rising 200 day SMA and lower Bollinger Band at $32.50, formed a spinning top candle and then a bullish engulfing candle.

From that move into confluence support, a rally materialized which took price on an 80% rise in two months – that’s worth our attention.

It’s been said that steel is a leading indicator of economic activity, in that companies will use steel to build new factories, buildings, products, etc and if demand for steel is high, this can be a leading indicator for improved economic activity in the future (and thus, higher stock market prices).

If that is the message from the recent rise in the share price of major steel company US Steel (X), then that’s a positive sign that we need to continue watching for a possible leading indicator of economic growth.

Corey Rosenbloom, CMT
Afraid to Trade.com

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8 Comments

8 Responses to “US Steel Major Rally from Support Could Mean Economic Growth Ahead”

  1. andy07cole Says:

    if you look at a two year chart theres a cup and handle formation breakout. definitely bullish

  2. redvetttes Says:

    your right when they hire 11.000.000 people

  3. Corey Rosenbloom, CMT Says:

    Andy,

    That's right! I didn't see that – I'm not one to spot C&H usually.

    Looking at the weekly chart, a good target might be the $70 or $80 level – the 200 week SMA and a prior gap zone in that area.

  4. Corey Rosenbloom, CMT Says:

    Haha – in light of the unemployment situation, stocks continue to rally still. Wild disconnect.

  5. andy07cole Says:

    if you look at a two year chart theres a cup and handle formation breakout. definitely bullish

  6. redvetttes Says:

    your right when they hire 11.000.000 people

  7. Corey Rosenbloom, CMT Says:

    Andy,

    That's right! I didn't see that – I'm not one to spot C&H usually.

    Looking at the weekly chart, a good target might be the $70 or $80 level – the 200 week SMA and a prior gap zone in that area.

  8. Corey Rosenbloom, CMT Says:

    Haha – in light of the unemployment situation, stocks continue to rally still. Wild disconnect.