RSS
Home
U.S. Steel to report earnings, stock to plunge 27%
Print
Email
RSS
Subscribe
Will earnings signal a recovery?
The steel industry is bruised and battered, but many are expecting the industry to recover in 2010. U.S. Steel is set to report third quarter earnings on Tuesday, October 27, 2009. It's hard to imagine they will be as strong as many would hope, and certainly not as impressive as the recent earnings posted by Apple and Amazon.
U.S. Steel is way overvalued
From a fundamental perspective the stock looks way overvalued compared to projected earnings. Right now, U.S. Steel, stock symbol X, has a modest price to earnings ratio of 13.6, but a staggering 44.0 P/E for the year 2010. Unless earnings surprise to the upside, the stock is in for a severe correction to more reasonable valuations.
Stock is ready to drop 27% from current levels
Using technical analysis, it becomes even clearer that the stock is ready to plunge to lower levels. On a 3 month daily chart you can clearly see a head and shoulders topping pattern has set up over the past 2 to 3 months. A break below the $40.30 level should take the stock down to the target price of $29.40 which is a 27% drop from current levels. This level acted as resistance in May, and support in July of this year so it is a likely target for the next down move.
Long term chart is in agreement
On a 1 year weekly chart, a bearish rising wedge pattern has been forming since the March 2009 lows. This pattern broke down a few weeks ago, and its target price measures to $31.50 per share which is remarkably close to the head and shoulders target price.
What will cause such a sharp correction?
The charts are forecasting a 27% drop in the stock price of U.S. Steel over the next couple of weeks. What catalysts could bring about such a sharp correction? Well, with earnings coming out this week, there will likely be some sour news for earnings forecasts for the 2010 year. After tripling off of the March 2009 lows, the stock needs to correct to levels that more accurately reflect the current situation. The reality is orders are anemic, steelworkers continue to face layoffs, and the stock market is on the verge of another sharp move lower.
Related Articles:
Comments
