Recession? Steel Dynamics Says 'No!'

Steel Dynamics, Inc. (Nasdaq: STLD) surprised everyone with its first-quarter results Tuesday. And I mean everyone.

The Indiana-based steel manufacturer posted earnings per share of 46 cents, a nickel above the Street consensus call and even above the company's own guidance. Management had been steering analysts toward an EPS range between 37 cents and 42 cents.

First-quarter EPS compares with 7 cents in the previous quarter and 29 cents a year ago.

Steel Dynamics' management attributed the boost in earnings to higher-than-expected net sales and operating income in the company's Metals Recycling and Ferrous Resources group.

Despite the current weakness in nonresidential steel demand, company officials expressed confidence that overall steel consumption will increase throughout the year. The reason for the optimism? Growing backlogs in the company's structural and rail division.

That seems to jibe with the latest industry numbers. Overall steel demand is on the rise according to Morgan Stanley data, reflected in a 4 percent increase in domestic steel product shipments-to a daily average of 106,087 short tons-in March alone.

Steel Dynamics' shares are now playing catch-up with the Market Vectors Steel Index ETF (NYSE Arca: SLX)-of which it's a component-after lagging for most of the past 12 months.

Now at the $18.50 level, STLD has been stair-stepping its way back from a 2008 slump that knocked $36 of the share price before bottoming near $5.

Despite the current optimism, share prices face some pretty stiff resistance overhead. Momentum and volatility have turned up, but closes above the $18.83 level are needed to convince traders that the February interim peak at $20.70 should be assaulted. A run-up failed in the first week of April as traders' and investors' convictions wavered ahead of the company's earnings report.

On the downside, the stock's 200-day moving average-now at $16.46-represents solid support.

In the intermediate term, $23 is the target for optimists, while a longer-range objective of $27 is supported by the company's fundamentals.