19 Sep

US Steel Bears Make a Comeback after Getting Knocked Out in 1H16

WRITTEN BY Mohit Oberoi, CFA

US steel bears

Before we start analyzing how steel bears are making a comeback, let’s discuss a few key terms. Short interest tells us the number of shares that have been sold short (SDS). Exchanges release the short interest every two weeks.

From short interest, we can derive the short interest ratio, which is short interest divided by the average daily traded volume. Short interest and short-interest-to-market-capitalization basically standardize short interest.

US Steel Bears Make a Comeback after Getting Knocked Out in 1H16

Short interest rises

According to the latest update, U.S. Steel’s (X) short interest ratio stood at 2.98 on August 31. The company’s short interest ratio was 2.5 on August 15. Currently, U.S. Steel’s short interest ratio is the highest since July 15.

AK Steel’s (AKS) short interest rose from 4.5 to 5.18 between August 15 and August 31. Currently, AK Steel’s short interest ratio is the highest since April 15. ArcelorMittal’s (MT) short interest ratio also rose between August 15 and August 31.

However, Nucor (NUE) and Steel Dynamics (STLD) saw a decline in their respective short interest ratios in the recent update. Due to their relatively strong balance sheets, both these companies tend to outperform the broader steel space in times of market turmoil.

Welcome break

The current downtrend in steel stocks is a welcome break for steel bears who literally got knocked out in 1H16. Rising steel prices triggered a sharp upward price action in US steel companies making things tough for bears who were betting against the steel industry’s revival. Now, as steel prices have been in a correction mode, bears seem to sense an opportunity.

Most steel companies have fallen hard since the beginning of August. In the next part, we’ll see if there are any oversold bets in the steel industry after the recent sell-off.

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