The Momentum Investor: Highlight On Cleveland-Cliffs (NYSE:CLF)


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The momentum investor’s sole purpose is to identify stocks that are positioning themselves for a price breakout, either fundamental (a new product, a merger), economic (strong sector growth), or market-based (an industry that gains strength with traders ). , Reasons (or a combination of the three). The column focuses on industry fundamentals, basic financial data, and charts to make its determination.

This is a high risk strategy and should only be used by traders who can lose a significant amount of money. This column is not intended to be a specific investment advice for individuals.

Investment thesis: The story of Cleveland-Cliff (CLF) is all about timing. The macroeconomic environment in the industry is positive. The company’s profits are growing incredibly quickly thanks to a recent acquisition. The materials sector is strong relative to the SPY as the company’s chart shows.

But the stock is either: consolidating a longer-term rally or topping. We won’t know until prices make a sharp move through the recent high of 26.51. When that happens, take a position.

Cleveland-Cliffs is a steel company:

Cleveland-Cliffs Inc. operates as a flat steel producer in North America. It also makes iron ore pellets. From mined raw materials and direct reduced iron to primary steelmaking and downstream finishing, stamping, tooling and tubing, the company is vertically integrated. It serves a number of markets by offering flat steel products and supplying steel to the automotive industry.

It is the fifth largest member of the steel sector by market capitalization.

In a previous article I showed that the macroeconomic framework for the basic materials sector is positive. In this article I noted the following:

  1. Both the current ISM and the Markit Economics PMI for US manufacturing are positive.
  2. New orders for a variety of durable goods are strong
  3. Industrial production and capacity utilization increase.

Please refer to the article for more details.

In 2020 (CLF) completed the acquisition of ArcelorMittal:

CLEVELAND – (BUSINESS WIRE) – Cleveland-Cliffs Inc. (NYSE: CLF) announced today that the company has successfully completed the acquisition of essentially all activities of ArcelorMittal USA LLC and its subsidiaries (“ArcelorMittal USA”), making it the largest flat steel producer in North America. On a full-year 2019 basis, the combined company had pro forma sales of approximately $ 17 billion and combined adjusted EBITDA of approximately $ 1.7 billion, including previously announced expected synergies.

This significantly increased the company’s profitability, as this extract from the company’s income statement shows:

As a result, the analysts are optimistic:

The above shows that of the groups that Seeking Alpha tracks, all three (Seeking Alpha writers, Wall Street analysts, and Seeking Alpha’s own quantitative system) are bullish.

Here is Seeking Alpha’s quantum analysis summary:

As for timing, the materials sector is currently outperforming the SPY.

The above chart of StockCharts’ relative rotation uses weekly data and shows that the XLB is currently leading the SPY.

The above relative rotation chart from StockCharts uses daily data and shows that the XLB leads the SPY in the daily timeframe.

The above chart of the relative rotation of StockCharts shows daily data for (CLF). The stock currently leads the SPY.

Finally, here is my standard momentum chart:

6-month chart of the CLF with the CLF / SPY ratio (top panel); MACD (1st panel below the price); Price-percentage oscillator (2nd field below the price): Chaikin Money Flow (3rd field below the price). From StockCharts.

The key to this chart is the long, rounded pattern that began in the spring of 2021 and continues to this day. This is either a long-term topping or consolidation pattern. We’ll know if and when prices break the recent high of 26.51. If you do this with follow-through at higher volume, the stock will go up.

All parts are lined up. But we need the price to confirm an upward move. Wait for a clear break through the 26.51 price level. In this case, take a position.

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