Just under a year ago during the early stages of a potent uptrend, I wrote this piece discussing and analyzing the Chaikin Money Flow (“CMF”) indicator and why I thought it was helping to suggest that the steel sector was on the cusp of a major breakout. After that post, the SLX subsequently went on a run from $64 to $77.40 over the next few months, with many individual steels attaining even bigger gains.
Today, I see that the steels are finally showing some signs of life. Essentially, the sector has been in a steep and vicious downtrend since February, easily registering as one of the weaker areas of the market for much of 2011. And yet, despite the huge initiative that the bears have held, they could down breach the $50 level of the SLX.
Moreover, the CMF is flashing a major bullish divergence, as it gained throughout each downside test of $50, and is now positive, which usually indicates a bullish bias. In other words, look for the steels to play catch-up here.