Sell Reliance Steel & Aluminum (RS)
Shares of steel producers plunged on Wednesday after Nucor (NUE) said it expects third-quarter earnings to come in under Wall Street’s estimates.
Nucor blamed the lowered guidance on “metal margin contraction and reduced shipping volumes, particularly at our sheet and plate mills,” and while the firm previously expected the lower volumes, the worse-than-expected margin contraction is what set off alarm bells for investors.
Consequently, the stocks of several major steel and aluminum companies were hit in a wave of sympathy selling yesterday, including U.S. Steel (X), Steel Dynamics (STLD) and Alcoa (AA)—all of which were down by an average of 10%.
This also pushed our conservative trading position in Reliance Steel & Aluminum (RS) below our stop-loss level of 184.70, which means we exited the stock on Wednesday with a 6% loss.
This leaves our stock/ETF portfolio with only three open positions. While this may seem under-allocated, given the weak undercurrent in the broad market right now, I believe this is justified and that we should hold off on adding new positions until market conditions warrant. I’ll have more to say about this in next week’s update. SELL