Steel Has Been Taking Off

At PowerRatings over the past few months, we have been looking at different groups, and trying to establish a relationship between a sector and the broad market. In our investigations, and in light of recent market action, one group that has really stood out among the rest is the Steel and Iron group. Steel stocks have been soaring lately in the past 2 months. The Steel HOLDR (SLX) has nearly performed identically to the broad market indices, with a major drawdown in August, followed by more rallying to new record highs.

The Steel and Iron group has a PowerRating (for Industries) of 7. From 1996-2006 industries with a PowerRating (for Industries) of 7 have achieved average annualized returns of 18.02%. By contrast, groups with a PowerRating (for Industries) of 10 have achieved an annualized return of 35.27% based on 3-month historical returns. A PowerRating (for Industries) of 7 is a respectable PowerRating on its own, but this group's recent activity warrant's a second pass.

The Steel HOLDRS (SLX) has gained +57% since hitting August lows. SLX seems to be consolidating, and very well could breakout of this flag pattern.

Rio Tinto Plc (RTP@RTP | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 5.

Companhia Vale do Rio Doce (RIO@RIO | Quote | Chart | News | PowerRating) has a PowerRating (for Investors) of 5.