The chart of steel (US Midwest Domestic Hot-rolled Coil Steel) is one of the cleaner technical charts in my queue . . . and it is a disaster zone. I’m looking at the front month weekly chart as a proxy for steel prices. Some key features of the chart:
HRC formed a massive double bottom (’09 and ’15) prior to a bull sweep that took the price to new highs (briefly) in mid-2018, in the process breaking through a significant downtrend line. The failed new high was significant, because as the saying goes: “From failed moves come fast moves.” Price subsequently plunged swiftly and gapped to the 61.8 Fib retracement, plunged again down to the 200 week moving average, gapped down (again!) right at the average to the underbelly of the previous trend, which coincided perfectly with the 38.1 Fib line. During the entire move price went from overbought to oversold (not good) on the RSI.
In the short term, steel *might* pullback to retest the prior trend. I would short it there if it does. There is a chance it *might* pull back all the way to the 200 week moving average and fill that gap (or even a little higher to the 50% Fib), but I would be surprised if it breaks back above that downtrend line given the strength of the downside move. The downtrend line looks to be very significant resistance at this point.
Long term, steel looks like it wants to retest 495 (another 10% lower from here), and I think probabilities favor an eventual break and retest of 363, possibly in 2020. In my view, this chart strongly supports forthcoming recessionary indications coming from the bond market.
Charts Above Made Using TradingView