In the post-election rally consolidation phase, I’ve been looking closely at what has long been one of my favorite and most reliable trade set-ups: the breakout/pullback.
The pattern forms when a stock breaks above an important resistance line and then pulls back a few days later to retest the breakout level. The old resistance line turns into support, and buying close to support is often a very profitable and lower-risk entry point.
That was the story with ArcelorMittal (NYSE:MT) when Hilary Kramer and I first recommended it in our Breakout Stocks newsletter. MT is a global integrated steel and mining company that’s poised to win big with a boost in U.S. infrastructure spending as well as continued pickup in global growth.
The stock had pulled back from a 52-week high set shortly after the election and was sitting on its 50-day moving average, which had served as support during its last few pullbacks.
MT had a strong start to the year, and now the setup is similar to what we bought into initially, just at a higher price with the support lines rising. The underlying technicals remain bullish, as the stock is holding above its 50-day moving average (the orange line), currently around $7.80, and volume has been positive.
We bought in a little bit cheaper in Breakout Stocks, but MT is still worth a look. Another bounce off the 50-day could spark a run back toward 52-week highs, which would bring healthy gains of around 11.5%, and I would not be surprised to see the stock continue toward $10 with the steel industry poised to be a solid winner here in 2017 based on increased global demand.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks and ETF Trend Trader where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.