Is Cleveland-Cliffs Looking Oversold Based on Technical Indicators?
Following our look at Cleveland-Cliffs’ (CLF) analyst estimates, let’s discuss the technical indicators for the company and its peers.
In this article, we’ll take a look at technical indicators such as moving averages and the relative strength index (or RSI). While an RSI below 30 indicates an oversold situation, an RSI above 70 is associated with overbought levels of the stock under consideration.
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Cleveland-Cliffs’ moving averages
Based on its October 10, 2017, closing price, Cleveland-Cliffs is trading 9.4% and 5.4% below its 50-day and 20-day moving averages, respectively.
As you can see in the chart above, Cleveland-Cliffs is trading at the highest discount to its moving averages compared to its peers.
Cleveland-Cliffs stock is very sensitive to changes in US steel prices as well as seaborne iron ore prices. The recent fall in iron ore prices has taken a toll on iron ore miners, including Cleveland-Cliffs.
The company is also trading with a 14-day RSI level of 37.2, which is fast approaching the oversold level of 30. Cleveland-Cliffs’ seaborne peers have also fallen in the aftermath of the iron ore price drop.
Vale SA (VALE) is trading at a 14-day RSI of 27.2. Cleveland-Cliffs’ stock has fallen 20.4% since September 7, 2017, while Vale has fallen 15.5%. The relative fall in other miners (XME) is comparatively lower at 5.5% for BHP (BHP) and 2.5% for Rio Tinto (RIO).
Investors should note that the overbought situation doesn’t always mean that these stock prices will revert lower. Stocks can remain oversold or overbought for long periods.
Technicals of CLF’s peers
The stock prices of Cleveland-Cliffs’ peers in the US steel sector have varied in the last few days. While U.S. Steel (X) has fallen 10.2% since September 7, 2017, Nucor (NUE) and Steel Dynamics (STLD) have risen 2.0% and 5.0%, respectively.
The most potent catalyst for Cleveland-Cliffs and its US-based peers lies in the outcome of the Section 232 investigation. Cleveland-Cliffs’ 3Q17 results, which are due to be released on October 20, could also provide a strong catalyst for the stock.