Don’t look now, but United States Steel Corporation (NYSE:X) is getting uppity. This morning’s gains were almost enough to place X stock atop the leaderboard. Given the beatdown suffered by the steel behemoth back in April, it’s nice to see some buying excitement for a change. But should bulls chase the rally? Or are the chances for follow-through slim? Let’s find out.
A bird’s-eye view of the weekly chart reveals just how significant the $28 level has been over the past few years. Look at how many times this price zone has halted rallies in the past.
With this morning’s pop, X stock is testing it once more. Rather than piling in now, with the hopes that buyers will be able to bust through $28 this go around, why not simply wait for it to happen? Then you can ride on their coattails during the follow through.
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The daily chart reveals the uptrend that formed following the mid-May bottom. The steady ascent now has the 20-day and 50-day moving averages pointing higher.
But look at that 200-day moving average stepping in to halt today’s breakout attempt. This provides yet another reason for caution until X can successfully rise above the $28 zone.
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But here’s the good news. Once buyers clear resistance they have a clean shot to $31 which will fill the April earnings gap. That provides some $3 or 11% of potential upside.
The X Stock Trade
To capitalize, consider buying the Dec $28 call options once resistance is breached. This will allow unlimited participation on any further rise in the stock. Right now the calls are trading for $1.65 but will probably cost around $1.85 to $1.90 by the time to the breakout materializes.
United States Steel Corporation is slated to report earnings on Nov. 1, so you should exit beforehand unless you’re willing to roll the dice into the event.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
