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Trading Diary: Steel and steel-related stocks get blast-furnaced

Written By | Jul 28, 2017

WASHINGTON, July 28, 2017 – It’s been a lousy two days for this investor. After enjoying (and taking) profits for the past two weeks, fearing an imminent market correction, we found late this week that we might not have moved quite fast enough.

Further, we made an ill-advised purchase that we didn’t think through, which led to a quick, defensive loss earlier today.

Trading Diary

In short, based on great earnings numbers, we picked up a modest position in AK Steel, (symbol: AKS), a rather hard-luck, partially old-line steel company with several U.S. mills. Like much of the steel industry, AKS has been on a long-awaited recovery arc in 2017, so we figured we’d try a couple hundred of these cheap shares to see if we could catch a point or two.

Read also: Tech stocks hit Friday by Amazon’s dismal earnings

Almost immediately, one little-known advisory firm pulled the plug on its previously bullish advice for these shares, which ignited a wave of selling after AKS’ initial pop on its good earnings numbers. In short order, we found ourselves off over 10 percent on the new buy, which exceeded our current stop-loss rule of 8 percent. So, reluctantly we bailed.

We should have known. After our wobbly but nicely improving shares of Cliffs Natural Resources (CLF) finally took off on the upside this week, we got nervous with the company’s rapid improvement after it announced excellent quarterly earnings. Lately, positive corporate earnings numbers that meet or beat analyst estimates are being rewarded by investors dumping, not buying shares.

As our CLF shares peaked and started to pull back, we quickly dumped our large position for roughly a 20 percent profit. Along with other steel and steel-related stocks, Cliffs also began to swoon from that point, and it’s off once again today, just like AKS, U.S. Steel (X), Nucor (NUE) and pretty much everything else steel related.

Another factor in the steel sector’s current decline might be the fact that the “for sure” imposition of steel dumping tariffs on China and others – something that was allegedly going to happen on or around June 30 of this year, didn’t.

Discussions on the steel tariff issue have been disappearing from the news and from business reports, and the Trump Administration has just announced they’re still “talking about it.” That’s presumably because they’ve met with stiff resistance and potential retaliation from other U.S. trading partners.

We happen to think that there is dumping of steel and other commodities and has been for years. That’s something that would clearly justify the imposition of tariffs until the U.S. gets a fair shake on this key industrial sector. But, as usual, our government is afraid of a trade war if we assert ourselves, even though this isn’t a certainty and even though known dumpers know full well we’d be justified in retaliating ourselves.

At any rate, the steel tariff plan appears to be on indefinite hold, like pretty much every pro-worker, pro-taxpayer, pro-American citizen favoring activity in Washington. It looks like investors in steel and steel-related companies have thrown in the bullish towel for now. To be continued. (But without holding positions in steel stocks.)

Ironically, these companies have been doing fairly well recently without those tariffs. But that doesn’t seem to matter. When you pull away the “expectations punch bowl,” people tend to abandon the party. That’s what we’re seeing this week. No more steel stuff for us now. Until the next time. Highly cyclical industries are pretty tough to game anyway.

We’ve continued to lighten up profitably in other areas where we’d acquired a few shares, notably in the tech and healthcare equal weight ETFs, RYT (tech) and (RYH) health.

Meanwhile, our extensive portfolio of mostly term-preferred stocks has been holding its own throughout. Ditto our modest position in Two Harbors (TWO), an excellent, multi-faceted, high yielding REIT we’ve been in many times before. We might acquire more if this already cheap stock (roughly 11 percent) gets cheaper.

McClellan Oscillator dipped below the zero line in Thursday trading action. (Image courtesy

Meanwhile, we’re not planning to do much else right now. The McClellan Oscillator has now dropped below the zero line, meaning that the current decline in stocks may still have a way to go. If so, we’d rather sit that bearish move out rather than negate the decent gains we’ve already booked this year.

Have a good weekend. We’ll be on the road in New Mexico next week, so our reports may be a bit spotty. But we’ll show up as we can, particularly if things get exciting. Or weird.

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17