A contrarian trader is someone who takes a position opposite to that of the majority of other traders. It is an investment style that goes against prevailing market trends by buying shares that are performing poorly and then selling when they perform well.

Arcmittal, South Africa’s primary steel maker expects a quite robust second quarter, after registering an R184-million gain in attributable earnings during the first quarter to March, a significant rebound from the R496-million loss reported in the fourth quarter last year. Greater buoyancy in steel markets were the result of a 36% increase in domestic sales volumes, a 6% increase in average Rand selling prices, and a 20% rise in liquid steel production, despite shutdowns that led to a shortage of reinforcing steel in South Africa. Arcmittal say they are satisfied with the outlook for steel as they see a turnaround in revenue and profit, but the main issue revolves around raw material costs.

The market did not like the numbers as it was expecting a lot more out of them. Arcmittal’s share price has fallen more than 14% since its recent highs in April. It is trading below all of its moving averages and the trend remains bearish. Although it is trading in oversold territory, it has not given any bullish signals as yet. There is support at the 7900c level, which also happens to be near the 66% retracement level and this should act as a possible turning point.

Evraz Highveld Steel and Vanadium (EHSV), is the second-largest steel manufacturer in South Africa, after ArcelorMittal SA. In the 12 months to December, Evraz Highveld reported a headline loss of R383-million compared to a gain of R167-million in 2009. Its share price has fallen more than 45% this year. The trend remains bearish but has started moving out of oversold territory. Wait for a change in trend confirmed by rising moving averages.

A contrarian may look at these two companies and decide to buy them as other traders are selling and would consider selling them when other traders start buying.