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Could Technical Indicators Mean Upside for Cliffs and Peers?

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Apr. 5 2018, Updated 10:31 a.m. ET

Stock returns

The trailing three-month stock returns for almost all the US steel stocks and seaborne iron ore stocks (PICK) are negative. Among these stocks, as you can see in the graph below, AK Steel (AKS) gave the most negative return, at 20.0%. Cleveland-Cliffs (CLF) has returned -3.6%. Vale (VALE) and Steel Dynamics (STLD), on the other hand, have returned 5.2% and 3.0%, respectively.

While US steel stocks gained substantially after the Trump administration announced 25% tariffs on imported steel, most of the gains were nullified after the exemptions from tariffs were extended to several countries.

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Cleveland-Cliffs’s technicals

Based on its March 29 closing price, Cleveland-Cliffs (CLF) is trading at a 14-day RSI (relative strength index) level of 42.6, which suggests it might be approaching an oversold level. The 14-day RSI level of 70 and above is usually associated with an overbought situation while a level of 30 or under is usually considered oversold. The recent sell-off in the stock after toned-down tariffs pushed the stock down.

Its moving averages also signify that the current stock price might have reached an oversold position. CLF is trading 5.4% below its 50-day moving average and 4.2% below its 20-day moving average.

Peer comparisons

Most peers have also seen short-term weakness, which has led them to trade in the oversold territory. AK Steel is trading at a 14-day RSI of 35.0, and Nucor (NUE) is trading at 31.6.

While the technicals for most stocks depict an oversold situation, the pick-up in prices might not be imminent. Investors should note that stock prices could remain oversold or overbought for long periods.

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