Gerdau SA (NYSE: GGB)

Gerdau S.A. produces and commercializes steel products worldwide. The company provides crude steel products, which include billets that are used to manufacture wire rods, rebars, and merchant bars; blooms for use in the manufacture of springs, forged parts, heavy structural shapes, and seamless tubes; and slabs, which are used in the steel industry for the rolling of various flat rolled products, as well as to produce hot and cold rolled coils, heavy slabs, and profiles. Its long rolled products comprise rebars, merchant bars, and profiles, which are primarily used in the construction and manufacturing industries; and drawn products, such as barbed and barbless fence wires, galvanized wires, fences, concrete reinforcing wire mesh, nails, and clamps for manufacturing, construction, and agricultural industries.

Take a look at the 1-year chart of Gerdau (NYSE: GGB) with the added notations:

1-year chart of Gerdau (NYSE: GGB)

This one’s pretty simply. After finally breaking $7.50 in January, GGB couldn’t get out of its own way for the next 2+ months. Starting in March the stock found a repeated area of support at $5.75 (green). GGB finally broke that support about a week ago and is now trying to hold $5.50. The stock should be moving overall lower from here even if a brief rally ensues first.

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The Tale of the Tape: GGB had a key level of support at $5.75. Now that the stock has broken support, a trader might want to enter a short trade at or near the $5.75, or on a break below $5.50, with a stop placed above the level of entry. A break back above $5.75 could negate the forecast for a move lower.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach