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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Stocks With China Economic Growth Connections

Stock-Markets / China Stocks Sep 13, 2010 - 12:50 PM GMT

By: Mike_Paulenoff

Stock-Markets

Best Financial Markets Analysis ArticleChina's growth prospects have brightened, as we look at in detail in our video this week, and here are charts of a number of stocks which may benefit from China's move.

One is United States Steel Corp. (X), which should benefit from China procurement of steel and heavy building materials. U.S. Steel has a pretty nice pattern, somewhat similar to the Shanghai Composite Index. U.S. Steel had an initial up move, got hung up at 50-51, pulled back, and now looks like it is ready to go again, holding its shorter-term moving averages and looking like it could be in a position to attack again the 200-day moving average, which isn’t falling, by the way, but rather rising.


U.S. Steel has been in the news because it may be on the takeover block. We don’t know. But it looks like U.S. Steel is about to go up, especially if China drags it higher, into the 51-52 area. If it breaks out it is going up toward 60.

Schnitzer Steel Industries (SCHN), a manufacturer of steel beams and other structural products, is also in a position to take off. Look at all the highs in the 49 1/2 area. Schnitzer may attack these highs at 49 1/2, and if it gets through I think it could go to 55.

Nucor Corporation (NUE) does not look quite as good as U.S. Steel or Schnitzer. But if we widen and elongate the chart, we can see that Nucor made a major unconfirmed corrective low at the end of August at 35.71. It has rallied 4 1/2 already, but it looks to me as though this corrective pattern is done. Nucor broke down, trapped the shorts, and now is heading back to test its 200-day at 42.82, from 40. The trendline, or resistance line, is at 44.60. So Nucor could be one to watch because it is lagging the others, but has a very positive chart set-up.

If you are not sure which steel stock will move, but you want to be in that sector, then look at the Market Vectors Steel ETF (SLX), which has an attractive chart. It has a base and a double-bottom, with the high around 60-61. The double bottom is where SLX is perched, as of its Friday close. The prior high is at 62 1/2, and if it gets through 62 1/2, then the SLX should run, with a target of 70.

Outside of steel, industrial materials could also benefit from China growth. Bucyrus International Inc. (BUCY), which manufactures heavy equipment for coal miners and copper miners, has a great looking chart. A positive reaction to China could send Bucyrus to retest its prior high at about 74 and change. That’s big resistance. If it breaks that, the trendline on the weekly chart from all the way back to June 2008 shows huge potential for the stock.

Joy Global, Inc. (JOYG), which produces heavy equipment for miners, is in a similar situation as Bucyrus, with a very powerful chart. Channel analysis shows that if it gets through its prior high at near 66, it potentially could reach 75, which would be the top of the channel. If we put up the weekly channel, it would argue for somewhere around 78-79 and looking like it might attempt a test of the June 2008 highs.

Caterpillar Inc. (CAT) looks very good as well. It looks like it’s been in a high level consolidation between 73.80 and the April high, a contracting range. If it breaks out of this coil-type pattern, that to me would look like a break out from a bullish coil. It has spent some time doing its homework, so to speak, and the objective would be somewhere around 80, if not 82.

Terex Corp. (TEX) has a similar type of pattern, with a double bottom that has not broken out yet. If it breaks the 200-day on the upside and takes out the prior highs at 21.60, then Terex would really take off. If it takes out 23, then 25-26 would be the target for Terex.

One more that is related to all these businesses is General Electric Co. (GE). GE looks like Terex and not quite as good as Bucyrus and Joy Global, but there is a very significant double bottom that has been carved out since the April highs. It has a big W that is putting a lot of upward pressure on a horizontal plateau breakout point, which is right around the 200-day average at 16.50. A break above 16.50 will take it up $2-$3 towards 18.50-19 for GE.

Let's go over to a stock we have in our MPTrader model portfolio: Walter Energy (WLT). It is volatile, but it has a picture similar to what we have been discussing. Walter makes a certain kind of coal necessary for the production of steel and iron ore. The Chinese are very much procuring this kind of coal. As you can see on the chart, the stock is flirting with its 200-day moving average, which is rising. Its other moving averages are below the price structure and rising for the most part, putting upward pressure on the 200-day at 76.25.

The pattern is a head and shoulder with a neckline or plateau in this 79.80 area. If it gets through here, it looks like 90 in Walter, which could be a huge move. It has the right momentum, as volume spikes on the upmoves and contracts severely on the pullbacks.

Walter is such a volatile stock that you have to keep your stops far enough away and believe in the story. You have to believe in the story that China is going to flip the lights on, that the authorities there orchestrated a soft landing, and now is ready to take off again. These types of charts of companies that produce and export products that are needed by the Chinese to continue to grow will breakout to the upside, and Walter is one of them.

Finally, we look at Market Vectors Coal ETF (KOL). This to has a base-like pattern series of higher lows and higher highs, putting pressure on the 200-day at the prior high at 35.60. If KOL breaks above the 35.50-.60 area, I think it will go to 40 in a continuation of the basing pattern of the longer-term upmove. It had a correction into the May lows, and it looks like it is about to at least test these highs around 40 again, which would be in sympathy with the other heavy industry and industrial type of names that will benefit from the China connection.

Sign up for a free 15-day trial to Mike's ETF & Stock Trading Diary today.

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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