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By: Costas Bocelli — November 3, 2016

This Strong Sector Just Delivered Another Double-Digit Winner

If you’ve been a regular reader of True Market Insider, you already know how important Relative Strength Analysis is to our investing approach.

You see, price action is truth.  So being able to identify sectors and individual securities that are demonstrating high levels of relative strength can give us an enormous edge.

And it’s quantifiable, too.  The data can quickly give you a clear snapshot of all the individual slices of the market.

We break-up the market universe into more than 40 narrow sectors and rank each one against every other.

It’s like holding a giant Round Robin Tournament every trading day.

This analysis allows us to easily identify the strongest sectors relative to all the others.

And right now, this one sector sits atop our relative strength rankings…

sector-relative-strength

The Steel & Iron Sector has actually been relatively strong for the better part of 2016.

If you recall in the June 23rd edition of TMI, we were already bringing this sector to your attention.  At the time, it was ranked #2 in our sector matrix.

And this led to recommending the purchase of November 22 strike Call options for $4.00 in Steel Dynamics (Symbol: STLD), a steel producing and metal recycling company.  At the time, STLD was demonstrating positive relative strength against the market and versus most of its sector peers.

Soon after making the recommendation, STLD hit a new 52-week high in mid-July of around $28 per share, increasing the value of the Call option by more than 50%.

But the stock then came under selling pressure in August to early-September, which turned an unrealized gain into a modest unrealized loss.

That said, we revisited the Steel & Iron Sector and the STLD options recommendation in the September 8th edition of TMI.

And here’s the thing…

At that time, the Steel & Iron Sector was still demonstrating very positive relative strength despite its short-term weakness.  In fact, even though we saw a pullback, the sector had moved to the top ranking in our relative strength matrix.

With that information, it made sense to continue holding the Call options.  And for readers looking to enter a bullish idea, it still looked like an attractive set-up and at a cheaper price, around $3.25 per contract.

Here’s a quick flash of the chart from the previous article…

(STLD 1-YR Daily Chart from September 07, 2016)stld

The takeaway was that there was a reasonable chance that STLD could return to the previous high at $28 before expiration, which included Q3 earnings results as a potential upside catalyst.

And since that update, that’s exactly what happened…

(STLD 1-YR Daily Chart from November 1, 2016)stld_1-yr_daily

The stock retested the $28 level earlier this week and the STLD November 22 strike Calls could have been sold for at least $5.80, or a profit of $180 per contract, which equates to a 45% Return on Investment!

With November options expiration two Fridays from tomorrow, it’s now recommended that you exit the position and lock in another winning trade.

Now here’s more good news…

The markets have recently come under pressure thanks to all of the uncertainty surrounding the upcoming election.

And because the Steel & Iron Sector continues to demonstrate very positive relative strength, any subsequent weakness should be viewed as a buying opportunity.

In our monthly Sector Focus newsletter, we recently featured the Steel & Iron Sector and identified one exchange traded fund and six individual securities that are demonstrating very positive relative strength.

Each investment idea has specific instructions including profit targets and stop-loss levels, so you’re never in the dark as how to manage each investment idea.

Prices of industrial metals such as copper, platinum, flat-rolled steel and iron ore are on the rise, which is underpinning the strength in the Steel & Iron Sector.

(Rising Iron Ore prices have been benefiting Steel & Iron producers)1yeardaily

The Steel & Iron sector continues to demonstrate very positive relative strength, and as long as these trends remain in place, this is one area of the market that deserves some attention.

To learn more about Sector Focus, and for access to premium research -- including the specific investment recommendations I mentioned today -- click here.

Until next week!

Costas Bocelli Contributor,

True Market Insider

 

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