NEW BEARISH Plays
Olympic Steel Inc. - ZEUS - close: 12.68 change: -0.74
Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 07, 2015
Time Frame: 3 to 4 weeks
Average Daily Volume = 56 thousand
New Positions: Yes, see below
Why We Like It:
We are adding ZEUS to the newsletter as a momentum trade. You could also consider it a hedge against our STLD trade, which hasn't really panned out as expected.
If you're not familiar with ZEUS, here's a brief description:
"Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 35 facilities in North America."
The steel industry has been really struggling with a flood of cheaper imports. We saw three major steel companies, STLD, NUE, and AKS, all lower guidance in March. The biggest complaint was a surge in imports, which has continued into 2015. The good news is that imports are slowing down because the glut of supply has driven prices lower. The bad news is that steel prices have been crushed.
Shares of ZEUS have been in a bear market for about a year. The earnings picture has not helped with ZEUS missing Wall Street's bottom line earnings estimates the last four quarters in a row.
Steel companies are hoping for the price of steel to find a bottom in the May-June time period. A couple of the companies listed above have suggested that the second half of 2015 will be better. That might just be wishful thinking. The economic slowdown in the first quarter of 2015 doesn't bode well for basic material companies.
Meanwhile the path of least resistance for ZEUS is lower. The point & figure chart is bearish and forecasting at $10.00 target. Today we saw ZEUS breakdown under support near $13.00 on double its average volume.
I consider this a higher-risk, more aggressive trade because ZEUS is not very liquid. The daily volume is exceptionally low. Plus, the options are not tradable because the spreads are too wide.
I'm suggesting small bearish positions if ZEUS trades at $12.45 or lower. We're not setting a target tonight but I'd aim for the $10.00 area.
Trigger @ $12.45 *small positions to limit risk*
- Suggested Positions -
Short ZEUS stock @ $12.45
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $0.50 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike