Monday, May 4, 2009

Is AK Steel off to the races? Looks like it.

AK Steel (AKS) seems to be off to the races with sharp upturn in the share price since April 1st. The stock is outperforming the much bigger rivals such as US Steel (X) and Nucor (NUE) by wide margin, as this chart on the left shows.
Today, AKS is joining my "Shoulda Coulda Stocks". I started watching the stock again in January, saw it hitting $12.99 and dipping right back down below its book value of $8.77 (NUE never went below their book value), as low as $5.39. I continued to look. When I called up the buy screen it had already made it back up around $7.50 (and that was around March 20).

I was pretty much sure that $5-something would be as low as this stock could go. And since this was one of the most beaten-down stock among the beaten-down infra sector, I felt the rebound, if happened, could vastly outpace the market. But I didn't do it. Why?

The auto industry. AK Steel, more than other steel makers, is a major supplier to auto companies. And the news coming out of that sector was nothing but end-of-the-world-as-we-know-it bad news.

So I kept watching. Even after reporting the 1st quarter results (sales dropping by half, ouch), the stock just kept going up. On Friday May 1, the company announced the surcharge ($10 per ton) on electrical steel (for energy infra) for June delivery, because of higher raw material and energy cost. Today, the stock price is up near 10% from Friday's close, at $15.37.

I don't think it was necessarily an inflation trade. It was rather a trade that said "Well, it doesn't look like the world is ending in a month, as we feared."

In retrospect, the tell for the brave was when the March 2 low of $5.39 DID NOT undercut the November low of $5.17, and when the stock didn't make a new low with the market on March 6. And the buy point I was looking at ($7.50) was about the handle breakout of the tiny cup it was forming. Would have been a 100% gain in 7 weeks.

Lesson learned on this fish: Even in this strange market, basic TA still seems to work ON THE LONG SIDE. To me, that's a sign to me that this rally may have a bit more ways to go.

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