A Bullish "TELL" for Main Street

Steel Stocks Are Used To Build “Stuff”:

We are seeing something bullish occurring on Wall Street, large amounts of institutional capital is flowing into steel stocks. Steel stocks serve as a good “tell” for the U.S. and global economy. Since steel is used to build “stuff” steel stocks tend to rally when the market believes the economy will strengthen.

Steel Stocks Have Lagged:

Since the March 2009 bottom, steel stocks, on average, have not participated in this very strong 5.5 year bull market. Why? Because economic growth across the developed world has been sluggish at best. Global Central Banks have spent the last 5 years aggressively printing money to stimulate economic growth. Finally, after all that easy money, the economy is beginning to improve and show traction. That is a primary driver for the steel stocks.

Steel Stocks Are Undervalued:

Since Steel stocks have not rallied over the past 5 years they are trading at a huge discount to the overall market. That is attractive for value investors and once earnings kick into gear over the next few quarters, growth investors will be jumping on board.

Steel Stocks Have Bottomed:

Over the past few months, it is abundantly clear that steel stocks have bottomed. Once a stock or sector bottoms, it typically has only one way to go; up.  In addition to bottoming, they are now breaking out of very long consolidation areas (bases). Steel stocks tend to precede Main St so, baring some unforeseen negative economic event, odds favor the U.S. and Global Economy should improve over the next 6-24 months. Capital is flowing into this area and we wanted to share what we are seeing with you and let you know we will be allocating capital to this space on normal/healthy pullbacks. Many of these stocks are extended on a daily and weekly basis- and, as always, we will be picking our spots carefully.

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Steel ETF: SLX


US Steel: X


AK Steel: AKS