Trade 3: Short X

A little late posting, relative to the trade trigger, but I decided I’d finish this post anyway.

US Steel has had a terrific rally since March lows, as equities and commodities have risen on a declining dollar and historically low Fed Funds rates. It is a very high beta issue that moves big and is also a hedgie favorite.

Given the current market landscape that necessitates the employment of a risk-on/risk-off asset allocation strategy, a granular microeconomic fundamental approach to this (or any) stock is futile in my opinion (right now, at least; I am a proponent of traditional fundamental analysis metrics like EV/EBIDTA, I just merely find them irrelevant in today’s liquidity-fueled market).

As such, US Steel must be taken for what it is: a high-beta, hedgie sponsored, commodity inverse-USD play that has had moves up and down.

Today X broke its rising trendline from November, as well as the support level of its flag this month, on huge volume. This may be setting up a reversal in this stock, which could send it tanking 30-40% or more, especially if the USD spikes up further. With deleveraging the bigger risk now that QE liquidity is dried up and no political capital (or Treasury demand) to replenish it, a long USD/short commodities playo n a high beta name could yield huge returns. X was a huge winner on the short side for me in 2008 and I expect it to be a big winner again at some point in 2010 (on the short side, and then the long side when reactionary policy to asset deflation re-starts).

A note to readers: I was deciding between this and Freemont-Mcmoran Copper & Gold (FCX) as my third posted trade. FCX is also a high beta commodity name with big gains since March. With China’s bubbly copper purchases running out of fuel (and the beginning of the liquidity extraction process there), FCX is a great fundamental and technical play, especially if the USD continues climbing. It also had a huge down day today.

The $61.50 support level was the short trigger and is where I had my trade entry placed.


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