by Tyler Craig | May 14, 2013 8:59 am
Steel stocks — which have been plagued by relative weakness in the basic material sector as well as the broader commodity complex — have had little to brag about this year. While the S&P 500 Index is up 15% year-to-date, the Market Vectors Steel ETF (NYSE:SLX) is down 12%.
And yet, with the recent rotation back into offensive sectors like technology, industrials and basic materials, many steel stocks have established fairly convincing bottoming patterns.
Click to Enlarge Since plumbing a new 52-week low at $39.37 in mid-April, the SLX has generated a hat trick of bullish signals.
Click to Enlarge One of the better-looking players in the steel space is Nucor (NYSE:NUE). Compared to SLX’s decline of 12%, the year-to-date 4% gain in NUE looks outright stellar. Thus, if you believe the recent resurrection in steel is the real deal, the three-day pullback in NUE might be setting up a decent low-risk entry point for bullish strategies.
One higher-probability play worth considering is selling the June 44 put for 90 cents. The max reward is limited to the initial 90 cents received and will be captured if NUE can remain above $44 by June expiration.
A viable exit strategy is to exit if NUE breaks back below its 200-day moving average at $42.50, which should limit your loss to less than $150.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
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