U.S. Steel (X) Hits 1-Year High: Where Human Logic Fails, Elliott Wave Pattern Prevails
Foreseeing X’s rally to 1-year highs was in the eye of the Elliott wave analyst – last September.
by Nico Isaac
Updated: March 15, 2023
Half a century ago, the Spanish artist Pablo Picasso was commissioned to create a work of art for the city of Chicago to capture its indefatigable grit and vigor. The U.S. Steel Corporation contributed the material necessary for architects to turn Picasso's scale model into a reality. In 1966, the work was complete, a 50-foot tall, 162-ton corrosive-tensile steel sculpture in the heart of Chicago's Daley Plaza.
The creation (shown below) debuted to mixed reviews. Some described it as an awkward bird, others an aardvark. One Chicago politician proposed replacing it with a giant pickle.
Some said it was a "baboon viewed from head on," while others swore it was inspired by the beautiful big-screen starlet Bridgette Bardot.
Picasso himself said it represented the "elegant, graceful proportions" of his Afghan hound Kabul. While one critic hedged his description as an "interesting design. But it has a long stupid face and looks like some giant insect that is about to eat a smaller, weaker insect."
And then the reputable culture rag Time Magazine called it "one of the most magnificent windfalls in Chicago history."
Suffice to say, even Picasso -- or maybe especially Picasso -- couldn't escape the fact that art is subjective. What one person views as a masterpiece, another swears is an abomination. But that's the artworld for you.
The world of financial markets, so says mainstream wisdom, is a horse of a different color.
That story goes like this: Publicly traded companies are assessed through an objective lens of unbiased facts and figures (known as "fundamentals") regarding current earnings and future growth.
But that story is as distorted as Picasso's portraits. And nothing exemplifies this like the recent performance in the company that provided the material for the artist's Chicago sculpture: U.S. Steel Corporation, ticker symbol X.
Last September, the stock for the second-largest U.S. steel manufacturer was pulled down in a widescale collapse of steel prices. They were down 40% in 2022 at the time. And mainstream perception of X was as divided as a crowd of art critics. Here, these news items from the time repaint the fragmented scene:
On September 15 Bloomberg wrote:
"Over the last 24 hours, three of the most iconic names in American heavy industry told investors that deliveries are waning across all sectors in what may be one of the bleakest indicators yet for the broader economy.
"'Accelerating market headwinds in the third quarter negatively impacted demand across most end-markets, which is expected to result in lower shipment volumes,' U.S. Steel said Thursday in its most detailed mid-quarter statement on the business in years."
Conversely, an October transcript of U.S. Steel's Q3 2022 earnings report painted the company's future in a much brighter light:
"There's a lot of noise out there, but one thing is clear, we are confident in our ability to execute our best for all future. I remain bullish on U.S. Steel's future. We are better positioned now more than ever to confront market uncertainty and to prove the foundational strength of our business."
In turn, public perception (by professional pundits or individual investors) of stocks is driven by emotion, not facts, which is constantly changing.
Objectivity in market forecasting is easier to achieve when using technical analysis, of which the Elliott wave model belongs. And, on September 14, 2022, our Trader's Classroom identified an Elliott wave pattern on the price chart of U.S. Steel Corporation (X) known as an zigzag.
For newbies, a zigzag is a simple three-wave pattern labeled A-B-C. The subwave sequence is 5-3-5, and the top of wave B is noticeably lower than the start of wave A:
In the September 14 Trader's Classroom, we showed the zigzag underway in X and outlined the next window of opportunity:
"Considering recent price action, we still have some additional decline probably into the 20.18-18.52 area. So later this month, maybe the week of the 26th, we'll finish wave C of B and then the stage will be set for a wave C move.
"I find the more clear, the more the pattern looks like a textbook example of an idealized Elliott wave structure, the more likely that whatever I'm expecting in the market comes to fruition. This is textbook Elliott wave structure."
From there, X continued to decline as expected. Prices fell into the 18 area before bottoming on September 29.
And from there, the stock reversed course in a powerful rally to 1-year highs on March 3. Also as forecast.
Trading stocks carries risk. And not all Elliott wave interpretations of price action turn out to be correct. But, in order to anticipate trend changes in the markets you follow, you must understand why they go up and down -- you must see the pattern -- and you must have clear price levels to help manage risk.
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