Materials company AK Steel (AKS) rocketed higher Tuesday following an early-morning Q4 earnings report that toppled Street estimates. AKS stock was propelled by the announcement of 9 cents per share in earnings, which beat by 7 cents, as well as revenues of $1.46 billion that edged out expectations of $1.44 billion. Moreover, the EPS figure was 130% better year-over-year, while sales were higher by 3%.
AK Steel — which among other things produces carbon, stainless and electrical flat-rolled steel for automotive and other markets — also said that it will provide detailed guidance for its first-quarter results of 2014 in March. This is consistent with the timing from previous years.
AKS also noted that its sales were aided by improved automobile sales, and although that might be somewhat of a lagging indicator, traders and AKS stock investors seemed to like what they heard.
The resulting rally was sizable — AKS stock soared almost 19% Tuesday, putting it among the S&P 500’s best performers, though it didn’t lift the likes of rival U.S. Steel (X).
In the past few years, AKS stock has experienced a significant drop from its all-time highs set in 2008. That slide didn’t end until spring 2013, putting it among the index’s biggest underperformers in the past few years. But all of this changed in the second half of 2013, when AK Steel staged a massive outperforming rally as it blew higher to the tune of just about 200% into a late-December top. The December top coincided with a multiyear diagonal resistance line that dates back to early 2010 on the weekly logarithmic chart below.
In the medium term, this diagonal resistance area, currently around the $7.70 area, is an important level to watch for if the stock can overcome it, plenty of more upside opens up.
On the daily time frame, Tuesday’s rally was technically significant not only from a price-action point of view, but from a volume standpoint, too. AKS stock usually averages around 9 million shares per day, but traded nearly 27 million shares Tuesday.
In terms of price action, on Monday, after AKS stock found lateral support at a consolidation price zone from early December and closed off the day’s lows, it gapped higher at the open Tuesday and never looked back. As a result, the stock staged a great two-day turnaround and quickly also moved back above its 50-day simple moving average (yellow).
From here, AKS stock now should have enough new upside momentum to again work itself higher toward the December highs over coming weeks/months. Tuesday’s lows can now be used as a stop-loss area of last resort.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.