Commercial Metals Company manufactures, recycles, and markets steel and metal products, and related materials and services in the United States and internationally. The Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. The Americas Mills segment operates 5 steel mills producing reinforcing bars, angles, flats, rounds, small beams, fence-post sections, and other shapes. The Americas Fabrication segment operates fence post manufacturing plants, construction-related product facilities, and plants that bend, weld, cut, and fabricate steel. The International Mill segment engages in mill, recycling, and fabrication operations through the operation of two rolling minimills that produce reinforcing bar (rebar) and merchant products. The International Marketing and Distribution segment processes, sells, and distributes steel products, ferrous and nonferrous metals, and other industrial products.
Take a look at the 1-year chart of Commercial Metals (NYSE: CMC) below with my added notations:
Starting in September, CMC declined into January, and from there the stock started a 5-month rally. During the decline, and subsequent rally, CMC created a very clear level of resistance at $17 (green). A break above that $17 level should mean higher prices for the stock, and on Friday CMC broke that level. And for confirmation, the stock broke out on a major increase in volume.
Join our new Linkedin Group by clicking the link below:
The Tale of the Tape: CMC broke through its key level of resistance at $17. A long trade could be entered on a pull back down to that level. However, a break back below $17 could negate the forecast for a higher move and would be an opportunity to get short the stock.
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!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach