We first wrote about Steel Dynamics on January 16th, 2020. The stock was trading near $33 a share, down from its May 2018 record high of $52.10. However, the Elliott Wave structure of this decline made us think more weakness can be expected.
Two months later, in mid-March 2020, the stock dipped below $15 a share during the coronavirus selloff. After successfully sidestepping that 55% crash, we wrote an update on STLD on May 19th. The price had already recovered to $24, but the chart below suggested the bulls were just getting started.
Barely two months in the pandemic with no vaccine in sight yet, Steel Dynamics’ chart was already looking bullish. The structure of the decline from over $52 to sub-$15 looked like a simple zigzag correction, labeled (a)-(b)-(c). According to the theory, once a correction is over, the preceding trend resumes. So, it made sense for STLD to rise.
No Need to Pick the Bottom to Do Well with Steel Dynamics Stock
That was it. No insider information on the company or the steel industry and no insight on how the pandemic was going to develop. Just a chart and an understanding of Elliott Wave patterns and market cycles. Less than a year later now, Steel Dynamics is approaching $50 a share. Take a look at its updated chart below.
The stock closed at $48.79 on Wednesday, up 100% in the ten months since we shared our bullish view. Given the structure of that recovery and the fact that the stock is still below its 2018 high, we think the bulls are not done yet. A new all-time high makes sense, especially as the price of steel has been on the rise the past year. In response, analysts have been increasing their 2021 earnings expectations for Steel Dynamics.
$60 a share seems like a reasonable target, meaning the stock can add another 20% from here. However, commodity companies are cyclical which makes them inappropriate for a buy-and-hold strategy. Their profits and, in turn, their stocks, tend to rise and fall with the price of the commodity. We think that once Steel Dynamics climbs to a new record, investors should use the occasion to take some profits, not to celebrate.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!