No Trump Bump for U.S. Steel Shareholders

United States Steel Corporation (X) has been drifting sideways since the Trump administration threatened to impose steel tariffs in the first quarter, although the policy is intended to support the American steel industry. The June 1 tariff implementation on the European Union, Canada and Mexico has had little effect on buying or selling pressure, although U.S. steel stock continues to hold seven-month support in the low $30s. 

This holding pattern may continue through the summer months while optimists hope for a negotiated solution and pessimists prepare for the worst-case scenario. Regardless of the final outcome, ongoing trade tensions could sharply lower worldwide economic output and eventually end the multi-year bull market, ultimately weighing on revenues of all sorts of American industrial companies, including those currently in the tariff limelight. (See also: 3 Sectors to Buy in a Trade War and 3 Sectors to Sell Short in a Trade War.)

X Long-Term Chart (1991 – 2018)

The stock carved a sideways pattern in the mid-$20s after coming public in its current incarnation in April 1991 and turned higher in October 1992. An eight-month uptrend topped out at $46.00 in 1993, with that price level coming back into play repeatedly in the past 25 years (red line). It then entered a severe decline, losing ground in a volatile seesaw pattern that finally bottomed out in the single digits in 2003.

A powerful advance booked historic gains into June 2008, posting an all-time high at $196. The stock dropped nearly 180 points in the next nine months, stunning complacent shareholders before bottoming out at a five-year low in the mid-teens. A strong bounce into April 2010 failed to ease major technical damage, stalling at $70.95 ahead of a secondary decline that tested the bear market low in 2013. Support held, generating a lower high, followed by a breakdown that hit an all-time low at $6.15 in January 2016.

A recovery wave remounted the bear market low in July 2016, re-establishing support in the mid-teens, ahead of upside that stalled at the multi-year trendline of lower highs in February 2017. It finally broke out in February 2018, but the uptick ended just one week later, giving way to a failed breakout. Selling pressure eased near $30, ahead of nearly four months of basing action at the underside of the trendline. The monthly stochastic oscillator crossed into a sell cycle in February 2018 but hasn't reached the oversold level, predicting bearish control into the fourth quarter.

X Short-Term Chart (2017 – 2018)

The rally into 2018 completed a bullish 100% retracement of the 2014 into 2016 decline while ending the multi-year string of lower highs. However, the decline back through the trendline marked a significant failure that could presage the start of a new downtrend. Even so, basing action in recent months favors neither bulls nor bears, telling sidelined market players to keep their powder dry until the standoff declares a winner with a strong trend, higher or lower. 

On-balance volume (OBV) bodes well for bulls in the second half of 2018, lifting to a seven-year high in February when the rally reached 2014 resistance. It turned lower into the second quarter, carving a high basing pattern, ahead of healthy buying interest so far in the third quarter. It is likely that technically oriented traders are contributing to short-term buying pressure, hoping for the completion of an inverse head and shoulders breakout, with the neckline perfectly aligned with the trendline failure at $38.50. (For more, see: Trump's Steel and Aluminum Tariffs: What You Need to Know.)

The Bottom Line

U.S. Steel has failed to reward shareholders since steel tariffs were announced earlier this year, dropping into a holding pattern that is generating a neutral bias. It is possible that price action is now completing the final stages of a base breakout, telling market players to focus their attention on resistance at $38.50. (For additional reading, check out: Top 4 Steel Stocks for 2018.)

<Disclosure: The author held no positions in aforementioned securities at the time of publication.>