Schnitzer Steel Straddles Moving Averages Pre-Earnings

Schnitzer Steel Industries, Inc. (SCHN) is a steel manufacturer that also recycles scrap metal, and the stock appears poised for upside in the case of a positive reaction to earnings when it reports results before the open on Wednesday, June 26. The stock failed at its 200-day simple moving average at $24.74 on Monday, June 24, but began the week above its 200-week simple moving average at $23.81.

The stock closed Monday, June 24, at $24.26, up 12.6% year to date and 15.9% above its Jan. 2 low of $20.94. The stock is in correction territory at 16.1% below its Dec. 3 high of $28.90. Schnitzer Steel stock set a multi-year high of $38.85 during the week of Jan. 12, 2018, and declined by a bear market 46% to its Jan. 2 low.

Analysts expect Schnitzer Steel to report earnings per share of 60 cents when it discloses results on Wednesday. The stock is cheap with a P/E ratio of 5.65 with a dividend yield of 3.04%, according to Macrotrends. The Supreme Court declined to hear a challenge by companies in the steel industry that say they are harmed by the 25% tariffs on imported steel.

The daily chart for Schnitzer Steel

Schnitzer Steel has been below a “death cross” since Aug. 28, when the 50-day simple moving average fell below the 200-day simple moving, indicating that lower prices lie ahead. This negative signal was in play when the stock set its Jan. 2 low of $20.94. The 2019 low of $21.00 was set on May 11 as a potential double bottom.

The close of $21.55 on Dec. 31 was an input to my proprietary analytics. The annual value level remains below the chart at $16.60. Note how the stock failed at its 200-day simple moving average at $24.74 on Monday.

The weekly chart for Schnitzer Steel

The weekly chart for Schnitzer Steel is positive, with the stock above its five-week modified moving average at $23.50 and above its 200-week simple moving average, or “reversion to the mean,” at $223.91. The stock has been climbing its “reversion to the mean” since the week of Dec. 21, when the average was $23.02. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 34.31 this week, up from 26.41 on June 21. Note the double bottom set during the weeks of Jan. 4 and June 7.

Trading strategy: Buy Schnitzer Steel shares on weakness to the 200-week simple moving average at $23.91 and reduce holdings on strength to the 2019 high of $26.82. 

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level changed at the end of each month. The quarterly level was changed at the end of March.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

The close on June 28 is the second most important for 2019 in terms of my analysis. This close will be an input to my proprietary analytics and will generate new weekly, monthly, quarterly, and semiannual levels for the stock.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.