Schnitzer Steel Stock Holds Value Level After Earnings

Schnitzer Steel Industries, Inc. (SCHN) beat analysts' earnings estimates before the opening bell on Thursday, but the stock opened lower. This move lower provided a buying opportunity, as the stock's semiannual value level at $24.25 and the 50-day simple moving average at $24.04 both held on weakness.

Schnitzer Steel stock closed Thursday, April 4, at $25.68, up 19.2% year to date and in bull market territory at 22.6% above its Jan. 2 low of $20.94. The stock is consolidating a longer-term bear market, down 32.2% from its July 10 high at $37.95.

Schnitzer operates as a steel manufacturer and scrap metal recycling company and has beaten analysts' estimates three quarters in a row. Steel stocks are rebounding in anticipation that the tariff issues will subside and that demand for the wall and infrastructure spending will send shares of steel companies such as Schnitzer to higher ground.

The daily chart for Schnitzer 

Schnitzer stock has been below a "death cross" since Aug. 28, when the 50-day simple moving average fell below the 200-day simple moving, indicating that lower prices would follow. This negative signal was in play when the stock set its Jan. 2 low of $20.94.

The close of $21.55 on Dec. 31 was an input to my proprietary analytics. This established the semiannual value level at $24.25, which held at Thursday's low. The March 29 close at $24.00 was the latest input to my analytics, and this resulted in a monthly value level at $17.35 and a quarterly risky level at $34.79.

The weekly chart for Schnitzer

The weekly chart for Schnitzer is positive, with the stock above its five-week modified moving average at $24.23 and above its 200-week simple moving average, or "reversion to the mean," at $23.54. The stock has been climbing this average since the week of Dec. 21, when the average was $23.02. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 56.22 this week, up from 49.30 on March 29.

Trading strategy: Buy Schnitzer stock on weakness to its semiannual value level at $24.25 and to its 200-week simple moving average at $23.54. Reduce holdings on strength to the 200-day simple moving average at $26.95.  

How to use my value levels and risky levels: Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.