US Steel (X) - After The Smackdown

I often have been asked why I don't consider stock fundamentals and why I only look at the charts. The answer is very simple: analysts' opinions of value can be very, very wrong, and company CEO's are paid to cheerlead the stock and to keep the waters calm. I only am interested in the markets REACTION to the fundamentals.

Witness: Last April, at the release of earnings, the CEO of US Steel made positive comments about Q2 being positive. Technically, though, the chart had just broken below a sizeable H&S top. Uh-oh.

In June and July, 2011, Deutsche Bank, Morgan Stanley and S&P Equity all put out buys on US Steel, Deutsche saying that it was cheap relative to its peers. US Steel fell another 10%, the H&S Top target of 40.39 got MADE, then...



...Yeesh. US Steel fell another 50% from that point, to a low of 18.85!

"Cheap can get a lot cheaper."

The US Steel Bulls tried to stand their ground by forming a Nested Symmetrical Triangle in the late summer of 2011, but it was no good. Instead of breaking it out to the upside, The Bears busted it and the stock tanked to its 18.85 low. UGH.

In my early days of writing this blog, I said many times, "We can't expect exactitude from technical analysis, but it can be astonishing how nearly exact it can be."

Witness: The December 19, 2011 retest of the bottom of the recent Rising Wedge (Black Trendline #1-#3). The successful retest was within less than one penny, and US Steel is up over 10% from there, in one month's time. That beats CD rates by a mile, doesn't it?

We never know if a trendline is significant or not until a breakout/breakdown target gets MADE, or reasonably approximated, or until Ms. Market validates our trendline with a "hit," like she did on December 19. Always excluding a horrible gap down which can happen to any stock, particularly at earnings, buying at a validation of support is a very low-risk entry. If it gets taken out, sell for a small loss. The potential gain far outweighs the risk involved (i.e, it's a very good risk/reward).

US Steel is slated to report earnings at the end of the month. That's always a "wild card."