Cleveland-Cliffs Rally Could Stall in Coming Months

Cleveland-Cliffs Inc. (CLF) is trading higher by more than 3% in Tuesday’s pre-market session after raising Q2 and fiscal year 2021 guidance. The iron ore producer now expects to earn $1.3 billion in the current quarter, compared to $1.2 billion prior estimates, while booking $5.0 billion in the full year, more than $1.0 billion above prior guidance.  However, it’s still trading lower for the week following a Monday decline of nearly 10%.

Iron Ore Rally

The stock surged off support at the 50-day moving average last week, lifting more than 30% in just three sessions to a 7-year high. It’s been pulling back since that time, perhaps inducing the Ohio miner to staunch the red ink with updated guidance. It has a long way to go to restore its historic pricing despite 2021’s phenomenal 58% year-to-date return, trading close to 100 points below the all-time peak posted in 2008.

North America’s top flat rolled steel and iron ore producer is attracting buying interest in reaction to a massive surge in iron ore prices, fueled by higher inflation expectations. The dense metal topped out in May 2021 and sold off about 20% in just two weeks but is now recovering at a rapid pace, underpinning higher stock prices. Even so, a bearish distribution pattern in place since February could indicate the uptrend that started in March 2020 will soon come to an end.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 4 ‘Buy’ and 4 ‘Hold’ recommendations (just eight analysts cover the issue). Price targets have lifted substantially in the last three months, ranging from a low of $20.00 to a Street-high $33.00 while the stock is set to open Tuesday’s session about $2 below the median $25.00 target. This placement suggests at least one more round of new highs before bears take control of the ticker tape.

Cleveland-Cliffs broke down from a multiyear double top pattern in 2014, dropping to a 29-year low in 2016, and completed a multiyear double bottom reversal at the end of 2020, signaling the first uptrend in more than a decade. It’s now trading above the 200-month moving average for the first time since 2013 but is coming into a zone of heavy resistance that could limit gains in the second half of 2021.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.