STLD and other steel stocks have been momentum favorites of mine for quite some time. While many steel stocks still look solid (l MT and RIO to name a few), some noteworthy high flyers are showing chinks in the armor. This is not a good sign for the industry as a whole.
Let's take a look at STLD's chart. The first thing that jumps out at me is that RSI is making lower highs. It is noteworthy that while price was making a double top that reached the old high in May, RSI trended lower.
Some may look at the recent positive price action and conclude that STLD is on it's way back to it's old highs. While the fact that the stock jumped back over the 50 day moving average and breakdown point earlier this month may seem like a bullish signal, it did so on less volume than the downtrend. Volume is the engine that pushes a stock forward, and I don't see much of it here. Therefore, the stock is front and center on my watchlist.
Note that this analysis is not a prediction that the stock will not mount it's old highs. However, it's fair to say that the probabilities favor a down move. While I won't take a stake in either direction just yet (that would be gambling, IMO), I will watch for a breakdown of support.
The key level to watch is $44. This area has acted as support since April, breaking down only once and subsequently remounting that level. If we see a high volume breakdown below $44, I will likely go short.