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When an issue has a major rally and goes into retreat mode, it's hard to determine if the pullback is just another buying opportunity or has there been a change in trend. This scenario applies to Cleveland-Cliffs Inc CLF.
The Company: Cleveland-Cliffs Inc is an independent iron ore mining company in the United States and is a supplier of iron ore pellets to the North American steel industry from its mines and processing facilities located in Michigan and Minnesota.
Long-Term Loser: Based on relative performance to the S&P 500 index, the issue has been a horrible long-term investment since it peaked in April 2011 at $102.44.
Based on its current price ($21), the stock has yielded a negative return of 80%. Over that same period of time, the index has yielded a positive return of 220%.
Finally A Bottom: The ultimate low off the all-time high was made in January 2016 at $1.16. Off that low, it peaked in October 2018 at $12.90 and had a majority of its price action in the $7-$11 range until the market meltdown in March 2020.
After ending 2019 at $8.40, the issue swooned to $2.63 and embarked on an impressive rally. The monster bounce off that low has for now peaked last month at $24.77. That marked the highest level for the issue since February 2014, when it peaked at $23.48 and went into a six-year downtrend.
Finding Support: Along with the S&P 500 index, the issue found a bottom on Monday at $18.51. The importance of that low was emphasized on Tuesday, when the issue bottomed just ahead of that low at $18.79.
Although the pair of lows doesn't coincide with other daily lows, it comes just under its June 8 low ($18.96), which provided the foundation for an explosive three-day rally that took the issue to the high for the move.
In addition, it filled a gap or void in price ($19.32 to $19.01) that was created on May 27. That low coincides with a series of highs at the $19 area in high, which led to a breakout to the high of the rebound. Once again, reinforcing the “old resistance” acting as a “new support” tenet of technical analysis.
Q2 Earnings Not A Catalyst: Before the open, the company reported second-quarter earnings of $1.46 per share, which came in below the estimate of $1.55 per share. The company reported quarterly revenue of $5 billion, which came in below the estimate of $5.09 billion.
Potential Catalyst: Much of the rally in the issue has been predicated on the upcoming passage of the infrastructure bill. Although the Senate rejected Wednesday a procedural step to advance the bill, the still-unwritten infrastructure bill sets the stage for a second attempt, possibly early next week.
Price Action: Despite the first EPS miss in 10 quarters, the “buy the dip” mentality has prevailed in Thursday’s session. After a $1 lower open, it continued in that direction, found support well ahead of the pair of lows from Monday and Tuesday at $19.52, and reversed course.
As of 3 p.m. EST, the issue has surpassed Wednesday’s high ($21.29), reaching $21.36 and is now attempting to remain in the $21 handle.
If the issue can clear the current pair of highs in the same area, there may be limited resistance until its July 16 high ($21,69) and after that it's open up to its July 15 high ($22.33). Beyond that, the trio of highs at the $23.35 area from July1 2-14 will act as formidable resistance.
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