2 Steel Stocks Looking to Reverse Ugly Earnings History – Schaeffers Research (blog)

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Earlier this month, steel stocks got a shot in the arm thanks to reports President Trump was considering tariffs on imported steel. Longer term, however, most names in the space have struggled in 2017, including AK Steel Holding Corporation (NYSE:AKS) and United States Steel Corporation (NYSE:X). With both companies set to report earnings tomorrow, we’re going to take a closer look at AKS and X stocks, considering both have been volatile after earnings in recent quarters. 

AK Steel Options Traders Brace for Another Big Post-Earnings Swing

Year-to-date, AK Steel stock is down 41%, including a 3.1% drop today to trade at $5.99. As such, the shares are testing potential support at their 50-day moving average, a trendline that guided them lower from mid-February to early June. Shareholders may be nervous about earnings, however, considering AKS’ recent post-earnings trading history.

Specifically, the stock fell 10.1% in the session after last quarter’s earnings release, and 6.6% in the previous quarter. At the same time, these two post-earnings drops were preceded by six quarters of after-earnings gains from AK Steel shares. Options traders are bracing for a major move, with data pointing toward an expected swing of 10.8% in either direction. 

Call buying has been a popular strategy in recent months. AKS has a 50-day call/put volume ratio of 10.86, which ranks in the 84th annual percentile across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) . This could possibly be connected to the stock’s elevated short-interest levels. That is, short interest represents almost 18% of AK Steel’s float, so some call buying could be from short sellers using options to hedge. 

Meanwhile, the equity has regularly exceeded options traders’ volatility expectations over the past year. This is according to AKS’ Schaeffer’s Volatility Scorecard (SVS), which stands at an elevated 81. 

Short Sellers Pile on U.S. Steel Stock Before Earnings

U.S. Steel also has a chart that leaves much to be desired. The stock has given back roughly 29% in 2017, last seen trading at $22.46, and is now feeling pressure from its descending 80-day moving average. In fact, X shares are set for a third straight down day. 

The equity will certainly be trying to avoid last quarter’s post-earnings fate, when the shares plummeted 26.8% in the session after reporting. This extended X stock’s post-earnings losing streak to three quarters, but optimists would likely point out the shares rallied 11.1% following last July’s report. This time around, the options market is pricing in an 11% swing from United States Steel. 

Like its sector peer, X has seen heavy call buying in recent months. The stock’s 50-day call/put volume at the ISE, CBOE, and PHLX is 3.04, which is only 5 percentage points from a 52-week peak. But also like AKS, U.S. Steel has been a favorite target of short sellers, with short interest rising 18.6% in the last reporting period alone. 

Finally, X shares have shown a tendency to make bigger-than-expected moves on the charts over the past year, compared to what options traders have priced in. This is evidenced by the stock’s SVS of 87. 

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