The after-hours earnings announcement from Alcoa that topped analysts’ estimates suggests that resource stocks are in all probability still cheap. It is quite likely that steel stocks such as Nucor and US Steel will also beat estimates if Alcoa’s results are anything to go by.
We have been watching the behaviour of the ETF SLX over the last few months and have been rather surprised at how strong it looks from a technical perspective and given the average price to book ratio of the constituents at 1.28x we still believe that the steel sector offers compelling value.
Take careful note of the ETF SEA. A break above the 14 level will generate a powerful confirming bullish signal for the steel sector. We believe that it is only a matter of days before the ETF SEA breaks through given the recent behaviour of Baltic Freight Rates
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