Do headlines of a slowing global economy or raised trade war threats have your attention? It may be time to look at the price charts of infrastructure stocks U.S. Steel (NYSE:X), Alcoa (NYSE:AA) and Cemex (NYSE:CX) to build long-term profits shorting and buying X stock, AA and shares of CX in your portfolio. Let me explain.
Are you mulling why the Federal Reserve cut rates for the first time in over a decade? Or does the latest news of an additional 10% tariff on $300 billion in Chinese goods by the U.S. government have you worried? Well, you’re not alone.
These macroeconomic and geopolitical environment have Wall Street’s undivided attention, while earnings season has quickly been shown the exit. But in order to profit from today’s headlines, you have to look at the big picture. And that’s where X stock, AA and CX come in.
Along with large-cap tech stocks such as Apple (NASDAQ:AAPL) or an industrial play like Caterpillar (NYSE:CAT), infrastructure stocks are obviously a group worth watching. And within this market area X, AA stock and shares of CX are companies to put on the radar for selling and buying based on what their price charts and not today’s headlines are telling us.
Infrastructure Stocks: U.S. Steel (X)
U.S. Steel is the first of our three infrastructure stocks. The provided weekly chart shows X stock has formed a bearish flag beneath lateral resistance dating back to the financial crisis. Even U.S. Steel’s better-than-expected earnings report hasn’t been able to put a bid in this one!
That’s not the only bearish evidence in X stock either. Today’s pattern is the second time where shares have fallen below support. Coupled with a failed uptrend attempt in 2018, this second attempt at breaking through this critical area looks all the more ominous.
The X Stock Trade
Short this infrastructure stock now and look for an eventual move towards the 2016 low. To keep losses contained and prevent fighting a bearish trend, I’d recommend a stop-loss slightly above the pattern high.
Alcoa is the next of our infrastructure stocks to put on your radar. However, I’m watching AA stock for a purchase. The monthly chart in AA stock does a good job of displaying a large broadening pattern that has developed over the past decade. Shares of Alcoa are near support and that’s bullish.
The formation isn’t perfect, but life rarely is either. More importantly, I see the spirit of this corrective base as being intact. And with a bullishly diverging stochastics setup, a bottom should be closer, rather than farther away.
The AA Stock Trade
Should a confirmed candlestick low in this infrastructure stock form in the coming weeks, AA stock offers plenty of upside and bang for the buck.
Based on the most recent pattern highs and angular resistance, a long in Alcoa could see $65 to $70 over the next 12 to 18 months.
You’ll have to be the judge of whether I left the best infrastructure stock for last. Mexico-based Cemex never quite recovered from last decade’s financial crisis. And conditions could get a great deal worse for CX stock.
Now, as a victim of slowing global growth and trade wars, CX stock has broken neckline support on its monthly chart. And with shares trading at $3.25 it’s hard not to see this bearish pattern as possibly being the final straw for shares of CEMEX.
The CX Stock Trade
My recommendation on CX stock is to gain short exposure today. I’d personally suggest a longer-term option such as the January 2021 $3 put. Priced for 55 cents, this bearish contract greatly reduces and limits risk in the event of an adverse pattern failure. And optimistically, if we’re right this could be a near five-bagger.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.