This morning’s post-earnings pop in AK Steel Holding Corporation (NYSE:AKS) is fading fast. It turns out an earnings beat isn’t enough to turn a downtrend that was months in the making. AKS stock opened 4.6% higher after reporting 19 cents earnings per share. Analysts were expecting 14 cents per share.
Chart watchers shouldn’t be surprised by the stock’s inability to hold this morning’s gains. The initial gap to $7.50 carried AKS right into major overhead resistance.
A cluster of prior pivot highs and lows reside in that area along with the declining 50-day moving average. Furthermore, AKS had quite the pre-earnings rally running from $6.15 to $7.15 ahead of this morning’s release. Tack on today’s up-gap and the struggling steel stock was up 22% in one week.
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That’s enough for to make tactical traders seriously consider taking some chips off the table. Which they did. AKS stock is now down 2.5% on the day.
The action in AKS stock serves as a prime example of how trading off of fundamentals (like an earnings beat) without at least glancing at a price chart is foolish.
This morning’s sharp reversal is particularly troubling considering that the rest of the market is ripping higher.
The AKS Stock Trade
Traders looking to initiate bullish trades should wait until the stock successfully breaches resistance and returns to an uptrend. Re-establishing itself back above the 50-day moving average should do the trick. Until then, making money to the long side looks challenging.
If anything, this morning’s pop-n-drop sets up nicely for bears looking to get in on the action. Today’s high of $7.54 serves as a logical stop loss for short trades. Provided AKS remains below that, sellers maintain the upper hand.
If you’re willing to bet on a continuation of the downtrend, then enter a short stock trade and look for AKS to head back to its prior low near $6.15.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
