After the close today, Alcoa (AA) reports earnings, which is traditionally the start of the quarterly season.  Expectations call for negative growth for the company and Alcoa’s EPS estimates are paltry compared to recent quarters.

Technical analysis of AA’s charts seems support the idea that the stock could decline in the near-term, as well, with four short-term bearish indicators and oscillators appearing on AA’s chart in the past trading week. These are denoted by the red dots on the chart below:

According to Profit Scanner powered by Recognia, during the recent week of trading, the following short-term bearish indicators and oscillators have appeared on AA’s chart:

• Apr 07, 2014 – Commodity Channel Index
• Apr 04, 2014 – Slow Stochastic
• Apr 03, 2014 – Fast Stochastic
• Apr 02, 2014 – Relative Strength Index (RSI)

Let’s look at what each of these events can tell traders.

Commodity Channel Index

The Commodity Channel Index (CCI) measures the deviation of the price from its average value (comparing to a chosen moving average, typically 20 bars). A Commodity Channel Index event tells traders the price is relatively far from its 20-bar average price. The oscillator is normalized by dividing by the typical deviation, so we get an oscillator fluctuating roughly between +100 and -100. Many traders use these as overbought (+100)/oversold (-100) signals and monitor for signs of reversal, but the intent was to use it to help identify when to take  long positions when CCI is above +100 (which could portend a bullish event), and when to take a short position when CCI is below -100 (which could portend a bearish event). When the price crosses back in between +100 and -100, another event triggers indicating an end to the prior bullish or bearish situation and a possible opportunity to close out such a position.

Slow Stochastic

Stochastics is built on the premise that as prices increase, “close” prices tend to be closer to the upper end of the recent price range, and vice versa.

The slow stochastic oscillator compares two lines called the %K and %D lines to predict the possibility of an uptrend or a downtrend. In price charts, the %K line typically appears as a solid line, and the %D line appears as a dotted line. The slow stochastic oscillator can be used effectively to monitor daily, weekly or monthly periods.

When the event is bullish, we may be facing higher prices as the price has risen out of oversold (%K crossed below 20 then rose again) and starting to trade higher up in the recent 14-bar high-to-low range (%K crossed above %D). The opposite is true for bearish events, where the price has fallen out of overbought and starting to trade lower in the recent high-to-low range.

Fast Stochastic

The fast stochastic oscillator compares two lines called the %K and %D lines to predict the possibility of an uptrend or a downtrend. In price charts, the %K line typically appears as a solid or bold line, and the %D line appears as a dotted or softer line. The fast stochastic oscillator can be used effectively to monitor daily, weekly or monthly periods.

When the fast stochastics event is bullish, we may be facing higher prices as the price has risen out of oversold (%K crossed below 20 then rose again) and starting to trade higher up in the recent 14-bar high-to-low range (%K crossed above %D). The opposite is true for bearish events, where the price has fallen out of overbought and starting to trade lower in the recent high-to-low range. Stochastics is built on the premise that as prices increase, “close” prices tend to be closer to the upper end of the recent price range, and vice versa. The raw %K number looks at the most recent “close” price as a percentage of the high-to-low price range over a specified period of time (14 bars) so when %K is high, it’s likely we’re seeing upward pressure, and vice versa.

Relative Strength Index

The Relative Strength Index (RSI) measures the strength of an issue compared to its recent history of price change by comparing “up” periods to “down” periods. Bearish events on the RSI signal lower prices ahead as the price seems to be recovering from overbought because the stock’s up days are no longer overwhelming down days to the same extent. It’s based on the premise that overbought conditions tend to occur after the market has advanced for a disproportionate number of periods.

The RSI fluctuates between 0 and 100 with 70 and 30 often used to indicate overbought and oversold levels, and 50 the dividing line indicating the direction of the trend. The RSI should not be confused with relative strength which compares a financial instrument to a market index

Is a Pullback an Opportunity?

But a bullish intermediate Ascending Continuation Triangle pattern could be telling traders that a short bout of selling is simply an opportunity to buy AA shares at a discount for a pop to $13.50 to $13.80. The bullish Ascending Continuation Triangle pattern occurred on AA’s chart on March 7, 2014. This particular pattern was expected to take approximately 32 trading days to resolve to the upside targets.

If the Ascending Continuation Triangle pattern is valid, technicians could expect AA to hit the $13.50 to $13.80 target on or around April 23, which could see the stock recovering in the weeks after a potential earnings hit.

Profit Scanner powered by Recognia can help traders of all levels find new trading customized trading opportunities for finding the best stocks to buy or short in specific sectors, price points, timeframes and so much more. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.