ETF investors looking for a commodity play with some momentum in the new year can give steel a closer look. In particular, adding some alternative assets to shore up a portfolio with momentum still can be had using the VanEck Vectors Steel ETF (SLX ).
SLX tries to reflect the performance of the NYSE Arca Steel Index, which follows global companies involved in the steel industry. While more than a third of SLX’s lineup is allocated to U.S. steel producers, the ETF has a heavily global tilt, including exposure to ex-US developed markets and emerging markets steel companies.
How has SLX performed since the pandemic? Looking at its one-year chart below, we can see a steady and enduring uptrend following the pandemic sell-offs in March with the fund hitting a high of $46.03 on December 17, 2020.
That high was achieved after SLX rose about 17% above its 50-day moving average. Heavy price action is typically backed by heavy volume and we saw exactly that.
The question now is whether a buying opportunity is brewing given its most recent strength in December. Using a relative strength index (RSI) filer on its 3-month chart, SLX is just below overbought levels, which shows the fund’s forward momentum.
Short-term investors may want to see if it dips further towards an oversold level before pouncing. With that said, we need further confirmation from another technical filter.
Still using its 3-month chart, we can apply the moving average convergence divergence (MACD) filter to see if a buying opportunity exists in an area of value. We see the exponential moving average (EMA) line below the signal line so we’re waiting to see if it the EMA can cross up the signal line before buying can occur.
2021 Could See "Continued Improvement"
Despite the challenging 2020, SLX still ended 2020 with a 20% gain. Fundamentally, the new year can continue to see improvement for the steel industry.
“The industry has had a challenging year,” said American Iron and Steel Institute President and CEO Kevin Dempsey in a NWI.com article. “In the spring, the bottom fell out of the markets and we’ve been clawing back since. Capacity utilization fell as low as 51% during the first week of May. We got to just over 73% utilization. So there’s been a substantial climb back up, but it’s still not at a fully sustainable level.”
“We’re hopeful for continued improvement,” he added further. “Furnaces are still down we hope to get back. We’re hoping to get back to that 80% to 85% utilization level.”