One of the Ultimate “Boom and Bust” Trading Vehicles

The big financial debate right now: Is the U.S. headed for another big recession? Or is the glass “half full”?
We’ll leave macro forecasting to others. Even the best analysts get it right about 51% of the time. But we can offer up a trading idea that will do well if the world doesn’t absolutely go to hell. It fits into our “bad to less bad” trading model. Our trade is to buy steel.
Companies that produce steel used for building skyscrapers, cars, bridges, and power lines are among the greatest “boom and bust” assets in #-ad_banner-#the world. They soar and crash as the global economy fluctuates. The thin profit margins these companies sport add to their extreme volatility.
For a picture of this volatility, note the past seven years of trading in the world’s largest steelmaker, ArcelorMittal (MT). During the speculative run up of 2006-2008, MT soared… more than tripling in share price. It then suffered an incredible crash during the credit crisis. Now note the far right side of the chart. Dumped by nervous investors, MT has plummeted 40% in the past two months. A decline this large “prices in” a lot of bad news… and often sets up big “bad to less bad” rallies.