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Steel Dynamics Shows Relative Strength

10/19/07 08:47:18 AM
by Arthur Hill

Steel Dynamics formed a big outside reversal at support and a relative strength breakout points to higher prices for the stock.

Security:   STLD
Position:   Accumulate

The top indicator on Figure 1 is the price relative and this compares the performance of Steel Dynamics (STLD) with the Standard & Poor's 500. The price relative rises when STLD outperforms and falls when STLD underperforms. The price relative surged in August, edged higher in September, and then flattened in October. There was a surge on October 17 and the price relative broke to a new high. This is quite positive for the stock and shows good relative strength.

On the price chart, the stock surged above 45 in September and then consolidated the last four weeks (Figure 1). STLD broke the 50-day and 200-day moving averages in the process and these subsequently turned into support. Note how the stock held above these averages and bounced off support at 44 in late September, early October, and mid-October. The latest bounce occurred with a long white candlestick and above-average volume.

FIGURE 1: STEEL DYNAMICS. The stock surged above 45 in September and then consolidated the following four weeks.
Graphic provided by: MetaStock.
This long white candlestick is no ordinary candlestick. The stock declined the prior five days and this candlestick traced out a big outside reversal. This outside reversal recovered almost all of the prior decline and the stock closed at its highest level since July. These are powerful patterns, especially when backed up by big volume. The follow-through above consolidation resistance triggered a nice breakout on good volume and this signals a continuation of the August–September advance. A similar move would target an advance to around 60 and key support is set at 44.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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