Steel Dynamics stock climbed 40% throughout the second half of 2019. The share price rose from $25 to almost $36, but that’s after a decline from $52.10 in May 2018. In other words, despite the recent recovery STLD is still down 36.7% in the past 19 months.
Can the steel manufacturer stock’s revival continue or was it just a short-term recovery within a larger downtrend? Putting Steel Dynamics’ 4-hour chart below into Elliott Wave context can help us find the answer. It is not very encouraging.
The decline from $52.10 to $25.03 can be seen as a complete impulse pattern. The five waves are labeled 1-2-3-4-5, where wave 1 seems to be an expanding leading diagonal. The recovery to $35.78 looks like a simple A-B-C zigzag correction with a triangle wave B.
According to the Elliott Wave theory, impulses point in the direction of the larger trend. Once the corresponding three-wave retracement is over, the trend resumes. In Steel Dynamics, we have an impulse to the south followed by a correction. If this count is correct, there is a complete bearish 5-3 wave cycle.
This means that instead of joining the bulls now, investors should remain cautious. The anticipated decline has the potential to drag Steel Dynamics below $25 a share. With the stock currently at $33, this translates into a 25% slump, maybe more.