Nucor (NUE) Fights To Stay In Trading Channel

Last week’s disappointing employment report put a dent in the bulls’ confidence; however, the parade has resumed with full force this week thanks to a solid start to earnings season with better-than-expected results from Alcoa. While major equity indexes have resumed their ascent to record highs, the skeptics continue to call for a market top in the face of rising prices. With no major fundamental changes taking place over the last few weeks, it’s difficult to gauge when the long-overdue correction will actually strike, as traders and investors alike have more reasons to buy on the dips rather than take profits [for more market news and analysis subscribe to our free newsletter].

Steel manufacturer Nucor Corporation (NUE) presents an intriguing opportunity at the moment that warrants a closer look from swing traders looking to get a piece of the action on Wall Street.

Chart Analysis

Consider Nucor’s one-year daily performance chart below. This steel stock has been climbing higher within a fairly well-defined trading range (blue line) since shares bottomed out in late May of 2012; since then, NUE has managed to rebound off the rising lower support line on multiple occasions as well as correct lower whenever it nears the upper resistance boundary. This stock broke out of its range at the start of 2013, and then managed to climb as high as $48.6 a share, only to pullback quite rapidly in the following weeks. Nonetheless, shares of NUE appear to be holding their ground, judging by the stock’s ability to re-enter its longer-term trading channel.

Click to Enlarge

Entering into a long position at current levels is attractive for two reasons; first and foremost, traders can favorably position themselves in anticipation of a rebound in NUE, which could result in potential upside up to the last resistance level of $48 a share. Second, traders can closely manage downside risk by setting a stop-loss right below the recent low in case selling pressures unexpectedly swoop in [see 5 Commodity Trading Mistakes You Could Be Making].

Outlook

Despite NUE’s longer-term upward-sloping trading channel, investors should note that a potential trend reversal may be developing; notice how the stock had three failed attempts at conquering $48 a share, after which it went onto post a series of lower-highs and lower-lows. From a technical perspective, this stock has major resistance around the $48 level, while support comes in at around $42 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing

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