Monday May 14, 2007

The Market Vectors Steel ETF (SLX) underwent a powerful key downside reversal on Monday, which argues that the steel sector is at or very near to a significant peak, and correction.

The SLX is an ETF comprised of 36 steel companies from around the globe. The largest two components of the underlying steel index are Rio Tinto (RTP) at 14.33%, and Companhia Vale do Rio Doce (RIO) at 14.27%. Arcelor Mittal (MT) = 8.6%, POSCO (PKX) = 7.45%, and Nucor (NUE) = 4.9%.

Certainly, the run in the steel index has been very powerful, but my overall technical work is warning me that the upleg off of the March low at 48.73 either peaked at last week's high of 65.50 or is building a near-term top formation ahead of a correction into the 61-60 target zone, and possibly to the 58.00 target area thereafter.

As long as the 65.50 resistance zone remains intact, I want to be exposed to the short side of the SLX, which dovetails with my other work that argues for relative U.S. economic weakness ahead.

Average daily trading volume is about 100,000 shares, which is enough for one to establish an initial position.