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Alcoa Inc (NYSE: AA): Exit on any bounce and re-enter only above $18.50

Boston, MA 09/17/2014 (wallstreetpr) – Alcoa Inc (NYSE: AA) (Closed: 16.16, Down: 1.40%) is showing weakness in the price for the last 4 sessions, even before it announced about the 25 million depositary shares of its own it has underwritten. It tried to make an intraday bounce, but that failed miserably as it closed more than a percent down, creating a candlestick with a long upper shadow, suggesting selling pressure at higher levels. The selloff is taking size this week, evident from the sharp rise in volume to 43.63 million against an average of 15.31 million.

The street remains bullish about the stock and discusses reasons for why the stock should rise, but the long term picture suggests otherwise. In the longer time frame, this stock has been one of the most volatile stocks. It made the first significant top at $43.62 in 2000 before sharply dropping to $23.25 in the same year, followed by another rally to $45.71 in 2001 only to be crashed to $17.62 by 2002. Some more volatile moves took place before the life high at $48.77 was hit in 2007.

The attempt to rally from the 2009 bottom of $4.97 made the first top at $17.60 in 2010, exactly the 2002 bottom. The second attempt to rise could reach $18.47, exactly the 2003 bottom, before crashing to sub-$8 levels and the last rally had made a high at $17.36 so far, coinciding with both the 2002 bottom and 2010 top. Add a perfect channel containing the entire price action from the 2011 top, resisting the price at $17.40 levels now and a perfect confluence zone is visible.

The last rally had started from the low of $7.82 and the trendline providing support to the entire rally till $17.36 comes at $15.75 now. A break of this trendline will signal much deeper fall.

Cautious investors may use any bounce to exit from the stock, especially if $15.75 is broken, and reenter the stock only on a break above $18.50.

Published by Viraj Shah

Viraj Shah has done M.Com (Finance) and currently pursuing CFP. He is a technical analyst who tracks US markets along with other global markets like India very closely. He is very passionate about stocks and believes that money can always be made in market.



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