A Look at the Devastation in US Steel X

Nov 23, 2008: 2:48 PM CST

The commodity collapse or demand destruction in prices has hurt commodities across the board, including companies that rely on them.  I wanted to take a special look at former high-flyer US Steel (X) to show the boom and bust and underscore the volatility in commodity-based stocks.

US Steel (X) Monthly:

I added an Elliott Wave count to show the completed five-wave large-scale impulse which terminated just shy of $200.00 per share in mid-2008.  The initial impulse began in early 2003 at the stock market bottom.  Of course, I’ve rarely seen a corrective Wave A flush this deep, but these certainly are unique times across all markets.

That being said, price began its ascension slowly from the $10.00 per share level in 2003 up to a record peak just shy of $200.00, yielding a potential (though I’m sure few if any investors achieved it) 2,000% return in five years.  Don’t get too excited – virtually every penny of the wealth generated to investors in this stock was obliterated in 5 month’s time with price plunging 90% from June to November, 2008.  It was a shocking and my guess wholly unexpected move for such a well-established company.

That being said, let’s zoom a little closer to the weekly chart for additional clues.

US Steel (X) Weekly:

Though the chart cannot capture the entire move due to the scaling, we have the largest part of the move which took price in mid-2005 from just above $30 per share to the $190 price peak in June 2008.  One thing that remained consistent throughout the entire price move was that price structurally stayed above the key 20 and 50 week EMAs with the exception of four quick breaks throughout the price rise.  It’s generally best to view these EMAs as support in a rising trend and to help interpret the price structure (including how far the EMAs are from each other, what their orientation is, etc).

These quick rinses beneath these averages would have triggered stop-loss orders which would have been frustrating, but nothing is perfect in market analysis.

Price formed a compact bull flag pattern throughout most of 2006 which found support at the rising 50 week EMA before breaking above the upper trendline to complete (actually exceed) a measured move (of the prior impulse) before finding resistance about the $120 level and forming yet another large-scale consolidation pattern which was a sort of ascending triangle pattern which triggered a powerful buy (entry) as price broke above the $120.00 per share resistance.  The target would have been the height of the triangle added to the break-out point which was roughly $50.00 (added to the $120.00 breakout), giving us a target of $170.00.

Price ultimately exceeded this target but then found difficulty climbing above the $190.00 per share level and as fears (expectations?) of a global recession took hold, “Demand Destruction” took down commodity prices across the board, bringing commodity-based stocks with them, including US Steel.

US Steel gives us a founding to build our analysis in terms of a meteoric rise followed by a boulder-like fall.  It also teaches the accumulation/distribution principles in terms of the four-stage process (from accumulation to realization to ‘euphoria’ to wide-scale distribution).

It also teaches us that “even strong stocks can suffer greatly” and, of course, not to attempt catching falling knives, no matter how great we think the company is or thinking “gosh, it just can’t go any lower.”

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