U.S. Steel: X Stock Marks the Spot

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Metal and mining stocks stole the show on Wall Street Wednesday. Led by a super surge in top holding United States Steel Corporation (NYSE:X), the SPDR S&P Metals & Mining ETF (NYSEARCA:XME) climbed 3.5% on the day.

The positive action marks a distinct change in character for XME and U.S. Steel, which have both suffered during the regime of falling oil prices. The entire metals and mining sector tends to get lumped into the commodities trade alongside crude.

Consider the following chart plotting both XME and crude oil (gray area chart) over the past year.

XME
Source: OptionsAnalytix

They’ve been birds of a like feather, boasting a positive correlation the lion’s share of the time. It’s no coincidence, then, that XME — and by extension X stock — have ascended alongside the recent recovery in oil prices.

A closer inspection of X stock reveals a picturesque bottoming pattern ripped right from the textbooks. Since plumbing new depths in January at a lowly $20, U.S. Steel has developed a classic ascending triangle. A pair of higher pivot lows reveal increased aggression by dip buyers and value hunters. The consolidation pattern has lasted long enough to flatten out the declining 50-day moving average and, more recently, turn it higher.

X
Source: OptionsAnalytix

Yesterday’s pop was accompanied by much higher-than-average volume, suggesting the breakout is the real deal. Any type of pullback in the coming days should be viewed as a gift and traded accordingly.

Steel Yourself with Naked Puts on X

Traders looking for exposure to steel stocks should take a serious look at U.S. Steel in the coming days. Given its cheap price tag, naked puts present an attractive, high-probability play.

With X sitting at $27.33 the May $24 puts can be sold for around 50 cents. Your maximum reward would be limited to the initial 50-cent credit and captured if X can remain above $24 for the next month.

By selling the put you obligate yourself to buy 100 shares of X stock if it falls below $24 by May expiration. Those wishing to sidestep assignment can simply buy back the put if X reaches the $24 level. The loss should be limited to somewhere around $100.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/x-stock-u-s-steel-stocks-marks-spot/.

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