The Risk vs Reward in US Steel
- Posted by JC Parets
- on July 30th, 2012
I swung by Bloomberg headquarters on my way home this afternoon to do a quick hit on their Street Smart show. They basically get a Fundamental guy, a Technician, and an options trader to fight over a specific topic. Today’s discussion was on US Steel, a name I happen to like from a risk/reward standpoint. The other two guys didn’t.
It’s hard to ignore the fact that the recent correction back to $18 has allowed the 200-day moving average to flatten out. This makes it a lot easier to penetrate, as opposed to the downward slope it had when it attempted to breakout back in the Spring. More importantly (I didn’t get to mention this on air), momentum has started to turn up. The relative strength index put in a higher low during last week’s retest of 18 creating a nice bullish divergence. I certainly wouldn’t want to be short this name after seeing that sort of support/momentum combination.
Think about it: the 2012 highs are up near $32 and last year’s highs are up above $60. So to risk a dollar with that much upside and momentum already turning seems like a no-brainer to me. Risk management is the key as always, and Andrew Keene made a good point about keeping that tight stop under 18. Anything above that and I think it makes sense.
Here’s the clip:
And here’s the chart:
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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