After a short holiday break, the inflation trade is back, baby!
Indeed, the turn of the year has been oh-so-helpful in reigniting demand for metal stocks across the board. For proof, look no further than the SPDR S&P Metals & Mining ETF (NYSEARCA:XME), which is up 7.7% and counting over the past three days.
This week’s surge couldn’t have come at a better time.
The bout of profit-taking striking the sector in December ushered XME shares to the rising 50-day moving average. A breach of that would have inflicted unnecessary damage to the uptrend. Fortunately, it wasn’t meant to be. Buyers have materialized in force this week to defend their turf and place the budding bull run back on track.
And that means quality buy setups are flashing across the sector. Today, we’ll look at three metal stocks to buy — and the best ways to buy them.
Metal Stocks to Buy: United States Steel (X)
Let’s kick things off with United States Steel Corporation (NYSE:X).
Spectators on the lookout for a breakout trade can stop the search right here. As it turns out, X really does mark the spot.
Buyers have waded into U.S. Steel for a few months now. The ongoing accumulation has been sufficient in pulling all major moving averages higher.
X stock spent much of the holidays digesting its post-election gains. Now, we have a nice little base from where the stock can launch in the weeks ahead. Watch for a break of near-term resistance at $38. Then grab the April $36 calls for around $5 or $6.
The risk is limited to the initial trade cost. The reward is unlimited.
Metal Stocks to Buy: AK Steel (AKS)
The action in AK Steel Holding Corporation (NYSE:AKS) has been equally compelling. In fact, its price chart is virtually identical to its predecessor showing that birds of a like feather do indeed flock together. AKS stock’s holiday respite created a classic ascending triangle pattern.
While resistance at $11 has held firm, anxious buyers have collaborated to form a series of higher-pivot lows.
With the triangle apex now looming, a breakout appears imminent. Wait for a break above $11.40 to confirm the trade, then grab the March $11 calls for around $1.23.
3 Metal Stocks to Buy: Freeport McMoRan (FCX)
Freeport-McMoRan Inc (NYSE:FCX) rounds out today’s trio with an epic start to 2017. FCX stock has now climbed 13% on heavy volume. The rally couldn’t have come at a better time. FCX suffered a strong pullback into year-end and was in desperate need of a bounce to keep its uptrend alive.
The 50-day moving average and major prior resistance in the $13 zone proved just the spot for buyers to finally reverse the retreat. Further strength should carry FCX stock to a re-test of resistance at $16.40 in the weeks ahead.
If you’re looking for a low-cost avenue to get involved, consider buying the March $14 calls for around $2. Your risk is capped at the initial $2 while the reward is unlimited.
As of this writing, Tyler Craig held bullish positions in XME and FCX.