The American integrated steel producer headquartered in Pittsburgh, Pennsylvania, United States Steel Corporation (NYSE: X) seems to be poised for a price surge as per its latest charts.
#1 Descending Triangle Upward Breakout: The stock’s daily chart shows that it had broken out of a descending triangle pattern in an upward direction. This is marked on the daily chart in purple color. The upward breakout from a bearish pattern like descending Triangle is a good bullish sign.
#2 Fibonacci Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. X has taken support at the 50% Fibonacci support level of the upmove, as seen in the daily chart. Currently, the stock is near the 61.8% Fibonacci level of the move, which acts as a good support area.
#4 Above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls are in control.
#5 Strong RSI: The RSI is above 50 and moving up, indicating strength.
#6 Cup and Handle Pattern Breakout: In the weekly chart, the stock has recently broken out of a cup and handle pattern.
This is marked in orange color. A cup and handle pattern is a consolidation and breakout pattern. Once the stock breaks out of the cup and handle pattern with high volume, it can possibly give high returns.
#7 %K above %D: The stochastics show that the %K line is currently above the %D line in the weekly chart. This is a bullish sign.
#8 Strong RSI: The RSI is above 50 and moving up in the weekly chart as well, indicating strength.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level is if the stock corrects back to the descending triangle breakout level and MA support level at around $35.
But for those with a higher risk appetite, you can buy half the intended quantity of shares at the current price of $38.26.
TP: Our target prices are $45 and $55 in the next 3-6 months.
SL: To limit risk, place a stop loss at $32.50. Note that the stop loss is on a closing basis.
Our target potential upside is almost 30% to 57% in the next 3-6 months.
- Entry at $35: For a risk of $2.50, our target rewards are $10 and $20. This is a 1:4 and 1:8 risk-reward trade.
- Entry at $38.26: For a risk of $5.76, our target reward (TP#2) is $16.74. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the support level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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